<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[ ] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to
sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
LA JOLLA PHARMACEUTICAL COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------
<PAGE> 2
LA JOLLA PHARMACEUTICAL COMPANY
6455 NANCY RIDGE DRIVE
SAN DIEGO, CALIFORNIA 92121
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 13, 1999
To the Stockholders of
LA JOLLA PHARMACEUTICAL COMPANY
The Annual Meeting of Stockholders of La Jolla Pharmaceutical Company, a
Delaware corporation (the "Company"), will be held at the Company's offices at
6455 Nancy Ridge Drive, San Diego, California 92121, on May 13, 1999, at 10:00
a.m. for the following purposes:
1. To elect a Board of five directors as follows: (a) two directors to
serve a three-year term, one director to serve a two-year term, and two
directors to serve a one-year term; or (b) if proposal number 5 is not approved,
five directors to serve until the next annual meeting of stockholders of the
Company and until their successors are elected and qualified.
2. To consider and vote on a proposal to amend the Company's 1994 Stock
Incentive Plan to increase by 750,000 (subject to antidilution adjustments
specified in the plan) the total number of shares of the Company's Common Stock
that may be issued pursuant to such plan.
3. To consider and vote on a proposal to amend the Company's 1994 Stock
Incentive Plan to include non-employee directors, including members of the
Board's Compensation Committee, within the group of persons eligible to receive
stock options (in addition to those awards of non-employee directors' options
that each such director and member of the Board's Compensation Committee is
already eligible to receive under the 1994 Stock Incentive Plan), restricted
stock, stock appreciation rights, stock payments, performance awards of cash
and/or stock, and dividend equivalents under such plan.
4. To consider and vote on a proposal to amend the Company's Restated
Certificate of Incorporation to increase the number of authorized shares of the
Company's Common Stock from 32,000,000 to 100,000,000.
5. To consider and vote on a proposal to (a) adopt classified board
provisions in the Company's Restated Certificate of Incorporation to (i)
implement a classified board of directors divided into three classes of
directors, with the term of office of one of the three classes of directors
expiring each year and with each class being elected for a three-year term, (ii)
provide that only the Board of Directors, and not the stockholders, may set by
resolution the number of directors within the specified range of five (5) to
nine (9), (iii) provide that only the Board of Directors may fill vacancies on
the Board (unless no Board members remain) and that any director appointed to
fill a vacancy on the Board of Directors will serve for the remainder of the
full term of the class in which the vacancy occurred, and (iv) require a vote of
75% of the Company's stockholders to amend or repeal the foregoing classified
board provisions (the "Classified Board Provisions"); and (b) to amend the
Company's Amended and Restated Bylaws to conform with the Classified Board
Provisions.
6. To consider and vote on a proposal to amend the Company's Restated
Certificate of Incorporation to prohibit stockholder action by written consent.
7. To transact such other business as may properly come before the
meeting or any adjournment thereof.
<PAGE> 3
The Company's Board of Directors has fixed the close of business on
March 17, 1999 as the record date for the determination of stockholders entitled
to notice of the annual meeting and to vote at the annual meeting.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING. YOU ARE
URGED TO SIGN, DATE AND COMPLETE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY
IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. IF YOU
ATTEND THE MEETING AND WISH TO DO SO, YOU MAY VOTE YOUR SHARES IN PERSON EVEN IF
YOU HAVE SIGNED AND RETURNED YOUR PROXY CARD.
By Order of the Board of Directors
Wood C. Erwin
Secretary
San Diego, California
April 13, 1999
2
<PAGE> 4
LA JOLLA PHARMACEUTICAL COMPANY
6455 NANCY RIDGE DRIVE
SAN DIEGO, CALIFORNIA 92121
---------------
PROXY STATEMENT
---------------
ANNUAL MEETING OF STOCKHOLDERS
MAY 13, 1999
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of La Jolla Pharmaceutical Company, a Delaware
corporation (the "Company"), for use at the Company's 1999 Annual Meeting of
Stockholders to be held on May 13, 1999 at 10:00 a.m. (the "Meeting") and at any
and all postponements and adjournments of the Meeting. The Meeting will be held
at the Company's offices at 6455 Nancy Ridge Drive, San Diego, California 92121.
This Proxy Statement and the accompanying form of proxy will be first mailed to
stockholders on or about April 13, 1999.
The cost of preparing, assembling and mailing the Notice of Annual
Meeting of Stockholders, Proxy Statement and form of proxy and the cost of
soliciting proxies will be paid by the Company. The Company will pay brokers or
other persons holding stock in their names or the names of their nominees for
the reasonable expenses of forwarding soliciting material to their principals.
Proxies may be solicited in person or by telephone, telefax or other electronic
means by personnel of the Company who will not receive any additional
compensation for such solicitation. In addition, the Company has engaged
MacKenzie Partners, Inc. to assist in soliciting proxies for a fee of
approximately $4,000 plus reimbursement of reasonable out-of-pocket expenses.
VOTING
The close of business on March 17, 1999 has been fixed as the record
date for the determination of stockholders entitled to notice of the Meeting and
to vote at the Meeting. On that date there were 20,110,103 shares of the
Company's Common Stock outstanding. Each share is entitled to one vote on any
matter that may be presented for consideration and action by the stockholders at
the Meeting. The holders of a majority of the shares of Common Stock outstanding
on the record date and entitled to be voted at the Meeting, present in person or
by proxy, will constitute a quorum for the transaction of business at the
Meeting and any adjournments and postponements thereof.
Shares abstained or subject to a broker non-vote are counted as present
for the purpose of determining the presence or absence of a quorum for the
transaction of business. For proposals other than the election of directors,
abstentions are counted in tabulations of the votes cast on a proposal presented
to stockholders and generally have the same effect as a vote against the
proposal, whereas broker non-votes are not counted for purposes of determining
whether a proposal has been approved. With regard to the election of directors,
votes may be cast in favor of the director or withheld. Because directors are
elected by plurality, abstentions from voting and broker non-votes will be
entirely excluded from the vote and will have no effect on its outcome. If a
quorum is present at the Meeting, the nominees receiving the greatest number of
votes (up to five directors) will be elected.
Each proxy submitted by a stockholder will, unless otherwise directed by
the stockholder in the proxy, be voted FOR (a) election of the five director
nominees named herein (Proposal 1); (b) amendment of the Company's 1994 Stock
Incentive Plan, as amended (the "Plan") to increase by 750,000 (subject to
antidilution adjustments specified in the Plan) the total number of shares of
the Company's Common Stock that may be issued pursuant to the Plan (Proposal 2);
(c) amendment of the Plan to include non-employee directors, including members
of the Board's Compensation Committee, within the group of persons eligible to
receive stock options (in addition to those
<PAGE> 5
awards of non-employee directors' options that each such director and member of
the Board's Compensation Committee is already eligible to receive under the
Plan), restricted stock, stock appreciation rights, stock payments, performance
awards of cash and/or stock, and dividend equivalents under the Plan (Proposal
3); (d) amendment of the Company's Restated Certificate of Incorporation to
increase the number of authorized shares of the Company's Common Stock to
100,000,000 (Proposal 4); (e) amendment of the Company's Restated Certificate of
Incorporation and Amended and Restated Bylaws to add the Classified Board
Provisions (Proposal 5); and (f) amendment of the Company's Restated Certificate
of Incorporation to eliminate the ability of the Company's stockholders to act
by written consent (Proposal 6). If a stockholder has submitted a proxy
appropriately directing how the shares represented thereby are to be voted, such
shares will be voted according to the stockholder's direction. Any stockholder
has the power to revoke his or her proxy at any time before it is voted at the
Meeting by submitting a written notice of revocation to the Secretary of the
Company or by filing a duly executed proxy bearing a later date. A proxy will
not be voted if the stockholder who executed it is present at the Meeting and
elects to vote the shares represented thereby in person.
The Board of Directors reserves the right to withhold any proposal
described herein from a vote at the Meeting if the Board of Directors deems a
vote on such proposal to be contrary to the best interests of the Company and
its stockholders. In such an event, the proposal withheld will be neither
adopted nor defeated.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of the Company's
Common Stock beneficially owned as of March 17, 1999 by those known by the
Company to be beneficial owners of more than five percent (5%) of the
outstanding shares of the Company's Common Stock, by each of the current
directors, by each of the executive officers named in the Summary Compensation
Table on page 8, and by all directors and executive officers of the Company as a
group. On March 17, 1999, there were 20,110,103 shares of Common Stock
outstanding. The number of shares beneficially owned is deemed to include shares
of the Company's Common Stock as to which the beneficial owner has or shares
either investment or voting power. Unless otherwise stated, and except for
voting powers held jointly with a person's spouse, the persons and entities
named in the table have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them. All information with
respect to beneficial ownership is based on filings made by the respective
beneficial owners with the Securities and Exchange Commission or information
provided to the Company by such beneficial owners.
2
<PAGE> 6
<TABLE>
<CAPTION>
Name and Address Amount and Nature Percent of
of Beneficial Owner of Beneficial Ownership(1) Class
------------------- -------------------------- ----------
<S> <C> <C>
Abbott Laboratories 3,369,604 16.8%
100 Abbott Park Road
Abbott Park, Illinois 60064
Biotech Target SA(2) 3,001,000 14.9%
Swiss Bank Tower
Panama 1
Republic of Panama
State of Wisconsin Investment Board 1,587,500 7.9%
121 East Wilson
Madison, Wisconsin 53707
Allstate Insurance Company(3) 1,247,066 6.2%
Allstate Plaza G5D
Northbrook, Illinois 60062
New York Life Insurance Company(4) 1,145,608 5.7%
51 Madison Avenue
New York, New York 10010
Thomas H. Adams, Ph.D.(5) 44,667 *
Mark T. Edgar, Ph.D.(5) 40,600 *
William E. Engbers(5) 37,667 *
Steven B. Engle(6) 339,234 1.7%
Wood C. Erwin(7) 32,935 *
Robert A. Fildes, Ph.D.(8) 86,769 *
Bonnie Hepburn, M.D.(5) 20,000 *
Joseph Stemler(9) 373,167 1.9%
W. Leigh Thompson, M.D., Ph.D.(10) 34,667 *
Peter G. Ulrich 3,935 *
Andrew Wiseman(11) 33,400 *
All directors and executive 1,062,639 5.3%
officers as a group
(10 persons)(12)
</TABLE>
- ----------------------
* Less than 1%
(1) Calculated pursuant to Rule 13d-3(d) under the Securities Exchange Act
of 1934, as amended. Shares not outstanding that are subject to options
or warrants exercisable by the holder thereof within 60 days of March
17, 1999 are deemed outstanding for the purposes of calculating the
number and percentage owned by such stockholder, but not deemed
outstanding for the purpose of calculating the percentage owned by each
other stockholder listed. Unless otherwise noted, all shares listed as
beneficially owned by a stockholder are actually outstanding.
(2) Wholly owned subsidiary of BB Biotech AG, a Swiss corporation.
(3) Includes 140,429 shares issuable upon exercise of warrants.
(4) Includes 112,343 shares issuable upon exercise of warrants.
(5) All shares are issuable upon exercise of stock options.
(6) Includes 337,250 shares issuable upon exercise of stock options and 500
shares issuable upon exercise of warrants.
(7) Includes 18,800 shares issuable upon exercise of stock options.
(8) Includes 42,867 shares issuable upon exercise of stock options and
12,101 shares issuable upon exercise of warrants.
(9) Includes 122,667 shares issuable upon exercise of stock options.
Includes 88,700 shares held by Stemler Company, LLC, that are
beneficially owned by Joseph Stemler.
(10) All shares are issuable upon exercise of stock options. All stock
options are held by Dr. Thompson's daughter, Mary Linton Bounetheau
Thompson Peters, and are beneficially owned by Dr. Thompson.
(11) Includes 28,275 shares issuable upon exercise of stock options.
(12) Includes 741,860 shares issuable upon exercise of stock options and
12,601 shares issuable upon exercise of warrants.
3
<PAGE> 7
PROPOSAL 1
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION
Under the current charter documents, the Company's directors are elected
at each annual meeting of stockholders. Currently, the number of authorized
directors of the Company is six. There will be a vacancy on the Board created by
Joseph Stemler's decision, announced at the Board's February 18, 1999 meeting,
to not seek nomination for re-election. The Board intends to fill this vacancy
when an appropriate successor can be found. At the Meeting, five directors will
be elected to serve until the next annual meeting of stockholders and until
their successors are elected and qualified, provided however that the effect of
Proposal 5, if approved, would be to classify the Board of Directors into three
classes having staggered terms of three years each and make an initial
classification of the nominees as listed below. Such an amendment would
therefore extend the terms of two of the directors for two years and the term of
one of the directors and the vacant director position for one year. Each
director would then serve until the annual meeting of stockholders at which
directors of his or her class are to be elected and/or until their respective
successors are duly elected and qualified. If a quorum is present at the
Meeting, the nominees receiving the greatest number of votes (up to five
directors) will be elected.
All of the nominees for election as directors at the Meeting set forth
in the table below are incumbent directors and were elected at the 1998 Annual
Meeting of Stockholders. Each of the nominees has consented to serve as a
director if elected. Except to the extent that authority to vote for any
directors is withheld in a proxy, shares represented by proxies will be voted
FOR such nominees. In the event that any of the nominees for director should
before the Meeting become unable to serve if elected, shares represented by
proxies will be voted for such substitute nominees as may be recommended by the
Company's existing Board of Directors, unless other directions are given in the
proxies. Proxies cannot be voted for a greater number of persons than the number
of nominees herein. To the Company's knowledge, all the nominees will be
available to serve.
The following biographical information is furnished with respect to each
of the five nominees for election at the Meeting.
<TABLE>
<CAPTION>
Class/End
of Term of
Director if
Classified
Director Board
Nominee Age Principal Occupation Since Approved
- ------- --- -------------------- -------- ------------
<S> <C> <C> <C> <C>
Thomas H. Adams, Ph.D.(1) 56 Chairman Emeritus of the 1991 Class 1/2000
Board of Genta, Inc.;
Chairman of the Board and
Chief Executive Officer of
Leucadia Technologies
William E. Engbers(2) 56 Former Director, Venture 1991 Class 3/2002
Capital, Allstate Insurance
Company
Steven B. Engle(3) 44 Chief Executive Officer and 1994 Class 1/2000
Chairman of the Board of the
Company
Robert A. Fildes, Ph.D.(4) 60 President of SB2, Inc. 1991 Class 2/2001
W. Leigh Thompson, M.D., PH.D.(5) 60 President and Chief Executive 1996 Class 3/2002
Officer of Profound Quality
Resources, Ltd.
</TABLE>
4
<PAGE> 8
- ----------------------
(1) DR. ADAMS is the founder and Chairman Emeritus of Genta, Inc., a publicly
held biotechnology company in the field of antisense technology, and, since
September 1998, has been Chairman of the Board and Chief Executive Officer
of Leucadia Technologies, a privately held company in the field of medical
devices. Before assuming the role of Chairman Emeritus of Genta, Inc. in
1997, Dr. Adams served as Genta, Inc.'s Chief Executive Officer. Before
founding Genta in 1989, Dr. Adams founded Gen-Probe, Inc. in 1984 and
served as its Chief Executive Officer and Chairman until its acquisition by
Chugai Biopharmaceuticals, Inc. in 1989. Before founding Gen-Probe and
until 1984, Dr. Adams was Senior Vice President of Research and Development
at Hybritech. Hybritech was later acquired by Eli Lilly and Co. in 1986.
Dr. Adams has also held management positions at Technicon Instruments and
the Hyland Division of Baxter Travenol, and served as a Director of Biosite
Diagnostics, Inc., a publicly held medical research firm, from 1989 to
1998. In addition, Dr. Adams currently serves as a Director of Life
Technologies, Inc., which is a publicly held medical research firm. Dr.
Adams holds a Ph.D. in Biochemistry from the University of California, at
Riverside.
(2) MR. ENGBERS is the former Director of Venture Capital for Allstate
Insurance Company. Mr. Engbers became a Director of Venture Capital for
Allstate Insurance Company in 1997 after serving as Venture Capital Manager
since 1989. Since the beginning of 1999, Mr. Engbers has been a consultant
to Allstate Insurance Company. Before joining Allstate, he was a Vice
President at Whitehead Associates, an investment firm, from 1983 to 1987,
and Chairman of the Board of Plant Genetics, Inc., a publicly traded
biotechnology company, from 1982 to 1989. Mr. Engbers currently serves as a
Director of DM Management, a publicly held women's apparel company, Anthra
Pharmaceuticals, Cardiologic Systems, Hawaiian Wireless, Lanart, Inc.,
Periodontics, Inc. and UroSurge, Inc. Mr. Engbers has been the Chairman or
Director of more than two dozen corporations.
(3) MR. ENGLE, Chairman of the Board and Chief Executive Officer, joined the
Company in 1993 as Executive Vice President and Chief Operating Officer. He
assumed the offices of President, Director, and Secretary in 1994, and
became Chief Executive Officer in 1995 and Chairman of the Board in 1997.
From 1991 to 1993, Mr. Engle served as Vice President of Marketing and in
other senior management positions while at Cygnus Inc., a publicly held
company that develops drug delivery systems. From 1987 to 1991, he was
Chief Executive Officer of Quantum Management Company, a privately held
management consulting firm serving the pharmaceutical industry. From 1984
to 1987, he was Vice President of Marketing and Divisional General Manager
for Micro Power Systems, a privately held company that manufactures high
technology products including medical devices. From 1979 to 1984, he was a
management consultant at Strategic Decisions Group and SRI International,
where he advised pharmaceutical, high technology and other companies. Since
1998, Mr. Engle has served as a Director of CareLinc Corporation, a
privately held developer of clinical information management systems and
BIOCOM, a regional trade association for the biotechnology and medical
devices industries. Mr. Engle holds an MSEE and a BSEE with a focus in
biomedical engineering from the University of Texas.
(4) DR. FILDES currently serves as President of SB2, Inc., a privately held
company in the field of antibody technology. From June to December of 1998,
Dr. Fildes served as Chief Executive Officer of Atlantic Pharmaceuticals, a
publicly held company in the field of biotechnology. From 1993 until August
1997, Dr. Fildes was the Chairman and Chief Executive Officer of Scotgen
Biopharmaceuticals, Inc., a privately held company in the field of human
monoclonal antibody technology. Scotgen Biopharmaceuticals filed for
Chapter 7 bankruptcy protection under the federal bankruptcy laws in August
of 1997. From 1990 to 1993, Dr. Fildes was an independent consultant in the
biopharmaceutical industry. Dr. Fildes was the President and Chief
Executive Officer of Cetus Corporation from 1982 to 1990. Before his eight
years at Cetus, Dr. Fildes was the President of Biogen, Inc. from 1980 to
1982 and the Vice President of Operations for the Industrial Division of
Bristol-Myers from 1975 to 1980. Dr. Fildes is currently a Director of
Carrington Laboratories, a publicly held company that develops and
manufactures products for wound and skin care, Atlantic Pharmaceuticals, a
publicly held company, and Cytovax Biotechnologies and SB2, Inc., privately
held companies. Dr. Fildes holds a D.C.C. degree in Microbial Bio-chemistry
and a Ph.D. in Biochemical Genetics from the University of London.
5
<PAGE> 9
(5) DR. THOMPSON has been President and Chief Executive Officer of Profound
Quality Resources, Ltd., a private healthcare consulting firm which
provides worldwide consulting services to health institutions and
manufacturers, since 1995. From 1982 until 1994, Dr. Thompson was employed
by Eli Lilly and Co., retiring as Chief Scientific Officer. Dr. Thompson
was Professor of Medicine at Case Western Reserve University from 1979
until 1982 and Professor of Medicine at Indiana University from 1984 to
1995. Dr. Thompson also serves as a Director of BAS, Inc., Corvas
International, DepoMed, Inc., Maret, Medarex, Inc., Ontogeny, Ophidian
Pharmaceuticals, Inc. and Orphan Medical, Inc., each of which is a medical
research firm. Dr. Thompson holds a Ph.D. from the Medical University of
South Carolina and an M.D. from The Johns Hopkins University.
BOARD COMMITTEES AND MEETINGS
The Audit Committee of the Board of Directors currently consists of Mr.
Engbers and Mr. Stemler. The Audit Committee (a) reviews, prior to publication,
the Company's annual financial statements; (b) reviews the scope of the current
annual audit and fees therefor, and the results of the prior year's audit; (c)
reviews the Company's accounting and financial reporting practices; (d) reviews
the Company's system of internal accounting controls; (e) reviews the scope of
any other services to be performed by the independent auditors; (f) recommends
the retention or replacement of the independent auditors; (g) reviews the
adequacy of the Company's accounting and financial personnel resources; (h)
reviews and considers any other matters relative to the audit of the Company's
accounts and the preparation of its financial statements and reports that the
committee deems appropriate; and (i) reviews, acts on and reports to the Board
of Directors with respect to various financial reporting and accounting
practices and consults with the Company's independent auditors and management
with respect thereto.
The Compensation Committee of the Board of Directors currently consists
of Dr. Adams, Dr. Thompson and Dr. Fildes. The Compensation Committee advises
the Board of Directors with respect to various human resource matters, including
compensation, and administers the Company's stock incentive plans.
The Board of Directors acts as a committee of the whole with respect to
nominations for membership on the Board. The Board will consider nominees
recommended by stockholders, and stockholders desiring to make such a
recommendation should submit the name, address, telephone number, and
qualifications of the proposed nominee in writing to the Company's Secretary.
See "Stockholder Proposals," below, for the requirements applicable to
stockholders wishing to make director nominations.
During the Company's fiscal year ended December 31, 1998, there were
five meetings of the Board of Directors, one telephonic meeting of the Audit
Committee, and two telephonic meetings of the Compensation Committee.
DIRECTORS' COMPENSATION
Directors who are also employees of the Company receive no extra
compensation for their service on the Board. Non-employee directors receive an
annual retainer of $5,000, fees of $1,000 per Board or committee meeting
attended in person, and $500 per telephonic Board or committee meeting, as well
as reimbursement of reasonable costs associated with attendance at meetings of
the Board and its committees.
Pursuant to the Plan, each non-employee director of the Company
automatically receives, upon becoming a director, a one-time grant of an option
to purchase up to 40,000 shares of the Company's Common Stock at an exercise
price equal to the fair market value of a share of the Common Stock on the date
of the option's grant. The options have a term of ten years and become
exercisable with respect to 25% of the underlying shares on the grant date and
with respect to an additional 25% of the underlying shares on the date of each
of the first three annual stockholders' meetings following the grant date (or,
if an annual meeting occurs within six months after the grant date, then on the
second, third and fourth anniversaries of the grant date), if the recipient is
then continuing as a director for the ensuing year. Each non-employee director
also receives, upon each re-election to the Board, an automatic annual grant of
an option to purchase up to 5,000 shares of the Company's Common Stock. These
options have a term of ten years and an exercise price equal to the fair market
value of a share of the Company's Common Stock on the date of grant. These
options vest and become exercisable on the earlier to occur of (a) the first
anniversary of the grant date or (b) immediately prior to the annual meeting of
stockholders of the Company
6
<PAGE> 10
next following the grant date, if the director has served as a director from the
grant date to such earlier date. These automatic grants of options to
non-employee directors are referred to herein as "Non-Employee Directors'
Options."
On December 3, 1998, each of the five non-employee directors was granted
an option to purchase up to 20,000 shares of the Company's Common Stock. Each
such award was contingent upon stockholder approval of Proposal 3 to amend the
Plan to include non-employee directors and members of the Board's Compensation
Committee within the group of persons eligible to receive stock options (in
addition to those awards of Non-Employee Directors' Options that each such
director and member of the Board's Compensation Committee is already eligible to
receive under the Plan), restricted stock, stock appreciation rights, stock
payments, performance awards of cash and/or stock, and dividend equivalents
under the Plan ("Incentive Awards"). Each option granted to a non-employee
director on December 3, 1998 vests one-third on the date of grant and one-third
on each of the first and second anniversaries of the grant date.
During the fiscal year ended December 31, 1998, options to purchase a
total of 125,000 shares of the Company's Common Stock were issued to the
Company's non-employee directors. Of those options, options to purchase 25,000
shares of the Company's Common Stock were annual grants of Non-Employee
Directors' Options and the remaining options to purchase 100,000 shares of the
Company's Common Stock were Incentive Awards and were issued contingent upon
approval of Proposal 3, as described above.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid for the last three
fiscal years to (a) the Company's Chief Executive Officer, (b) the other four
most highly compensated persons who were serving as executive officers of the
Company at the end of the fiscal year ended December 31, 1998 and whose total
annual salary and bonus for that fiscal year exceeded $100,000, and (c) an
additional individual, Peter G. Ulrich, who would have been in the latter
category of most highly compensated executive officers had he still been serving
as an executive officer of the Company on December 31, 1998 (collectively, the
"Named Executive Officers").
7
<PAGE> 11
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
---------------------- ----------
Securities
Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Options (#) Compensation($)
- --------------------------- ---- --------- -------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Steven B. Engle 1998 279,900 -- 150,000 --
Chief Executive Officer and 1997 246,737 10,000 25,000 --
Chairman of the Board 1996 222,461 -- 40,000 8,410(1)
Mark T. Edgar, Ph.D. 1998 178,385 -- 50,000 --
Vice President of Product 1997 155,863 -- 19,000 --
Development and Operations 1996 143,631 -- 15,000 --
Bonnie Hepburn, M.D.(2) 1998 172,180 -- -- --
Vice President of Clinical 1997 200,682 -- -- --
Development 1996 130,769 -- 50,000 23,758(1)
Peter G. Ulrich(3) 1998 135,395 -- -- --
Executive Vice President 1997 170,326 5,000 55,000 --
1996 150,865 -- 20,000 --
Wood C. Erwin 1998 132,141 -- 31,000 --
Vice President of Finance and 1997 110,754 -- 9,000 6,086(1)
Chief Financial Officer 1996 90,384 -- 30,000 8,758(1)
Andrew Wiseman, Ph.D. 1998 104,294 -- 12,000 --
Director of Business 1997 95,518 5,000 10,000 --
Development 1996 81,690 -- 6,000 --
</TABLE>
- ----------------------
(1) All Other Compensation consisted of relocation expense reimbursement.
(2) Dr. Hepburn joined the Company as Vice President of Clinical Development
on April 29, 1996. Accordingly, she received compensation from the
Company only for the period from April 29 to December 31 in fiscal year
ended December 31, 1996.
(3) Mr. Ulrich left the Company on July 31, 1998.
8
<PAGE> 12
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock options
granted to the Named Executive Officers during the fiscal year ended December
31, 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------ Potential Realizable
% of Value at Assumed Annual
Number of Total Rates of Stock Price
Securities Options Appreciation for
Underlying Granted to Exercise Option Term($)(4)
Options Employees in Price Expiration -----------------------
Name Granted(#)(1) Fiscal Year ($/share)(2) Date(3) 5% 10%
---- ------------ ------------ ------------ ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Steven B. Engle 20,000 3.4% 4.000 5/13/08 50,312 127,499
36,705 6.2% 3.625 12/3/08 83,678 212,056
93,295 15.7% 3.625 12/3/08 212,689 538,995
Mark T. Edgar 25,000 4.2% 3.500 7/1/08 55,028 139,452
25,000 4.2% 3.625 12/3/08 56,994 144,433
Bonnie Hepburn -- 0.0% -- -- -- --
Peter G. Ulrich -- 0.0% -- -- -- --
Wood C. Erwin 31,000 5.2% 3.625 12/3/08 70,672 179,097
Andrew Wiseman 4,000 0.7% 2.625 9/17/08 6,603 16,734
8,000 1.3% 3.625 12/3/08 18,283 46,219
</TABLE>
- ----------------------
(1) All options were granted under the Plan. The Plan is administered by the
Compensation Committee of the Board, which has broad discretion and
authority to construe and interpret the Plan and to modify outstanding
options. All options granted on December 3, 1998, which consists of each
option listed above with an expiration date of December 3, 2008, are
exercisable with respect to 33.33% of the shares covered thereby starting
on the first anniversary of the grant date, and thereafter with respect an
additional 2.778% of the shares covered thereby on each successive monthly
anniversary for twenty-four months. The remaining options listed above are
exercisable with respect to 20% of the shares covered thereby starting on
the first anniversary of the grant date, and thereafter with respect to an
additional 20% of the shares covered thereby on each successive anniversary
date.
(2) The exercise price and tax withholding obligations related to the exercise
may be paid by delivery of already owned shares or by offset of the
underlying shares, subject to certain conditions. The Exercise Price for
each grant is the market price of the Company's Common Stock on the date of
grant.
(3) All of the options were granted for a term of ten years, subject to earlier
termination upon certain events related to termination of employment or a
change in control of the Company.
(4) The potential realizable values listed are based on an assumption that the
market price of the Company's Common Stock appreciates at the stated rate,
compounded annually, from the date of grant to the expiration date. The 5%
and 10% assumed rates of appreciation are determined by the rules of the
Securities and Exchange Commission and do not represent the Company's
estimate of the future market value of the Common Stock. Actual gains, if
any, are dependent on the future market price of the Company's Common
Stock.
9
<PAGE> 13
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth the number of shares acquired on exercise
of stock options and the aggregate gains realized on exercise during the fiscal
year ended December 31, 1998 by the Named Executive Officers. The table also
sets forth the number of shares covered by exercisable and unexercisable options
held by such executives on December 31, 1998, and the aggregate gains that would
have been realized had these options been exercised on December 31, 1998, even
though these options were not exercised, and the unexercisable options could not
have been exercised, on that date.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at Fiscal In-the-Money Options
Acquired Year End (#) At Fiscal Year End(1)($)
on Exercise Value -------------------------- --------------------------
Name (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Steven B. Engle -- -- 315,583 209,417 608,685 147,936
Mark T. Edgar -- -- 32,300 82,700 20,286 54,649
Bonnie Hepburn -- -- 20,000 30,000 -- --
Peter G. Ulrich -- -- -- -- -- --
Wood C. Erwin -- -- 13,800 56,200 1,500 29,375
Andrew Wiseman -- -- 26,275 28,600 54,485 20,448
</TABLE>
- ----------------------
(1) These amounts represent the difference between the exercise price of the
in-the-money options and the market price of the Company's Common Stock on
December 31, 1998 (the last trading day of 1998). The closing price of the
Company's Common Stock on that day on the Nasdaq National Market was $4.50.
Options are in-the-money if the market value of the shares covered thereby
is greater than the option exercise price.
EMPLOYMENT AND CONSULTING CONTRACTS
Steven B. Engle has an employment contract with the Company that
provides for a minimum annual salary of $240,000 and entitles him to receive
twelve months severance and up to twelve months of medical, dental and life
insurance coverage in the event of (a) involuntary termination of his employment
by the Company without cause; (b) if a change in control of the Company occurs
and (i) his employment is terminated, (ii) his reporting responsibility changes,
such that he does not report directly to the CEO or board of directors of the
surviving company on all matters, (iii) he has a material reduction in
responsibility or (iv) he is required to be employed other than in the San Diego
area. Also, all employee stock options and other performance awards granted to
Mr. Engle before December 31, 1997 shall automatically vest and become fully
exercisable as of the termination of his employment and shall remain exercisable
for a minimum period of one year.
Joseph Stemler has a consulting contract with the Company pursuant to
which he may perform consulting services for the Company from time to time as
requested by the Company's Chief Executive Officer in exchange for $1,500 per
day.
In addition, all of the Company's employees, including the Named
Executive Officers, are required to enter into Invention and Confidential
Information Agreements with the Company. These agreements are intended to
protect the Company's confidential information, including assignment to the
Company of inventions conceived by the employee in the course of his or her
employment with the Company. However, due to proscriptions on noncompetition
covenants under California law, neither the Company's executives nor its
employees are subject to any restriction on accepting employment with a
competitor of the Company if their employment with the Company terminates for
any reason.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
is composed of three non-employee directors and administers the Company's
executive compensation programs, including the Company's stock incentive plans.
The Company's executive compensation program is designed to provide competitive
levels of base compensation in order to attract, retain and motivate
high-quality employees, tie individual total compensation to individual
performance and the success of the Company, and align the interests of the
Company's executive officers with those of its stockholders. In 1998, the
Company's executive compensation program consisted of base salary and stock
option grants.
10
<PAGE> 14
The Committee believes that the Company's ability to execute its drug
discovery programs and successfully bring products to market depends heavily
upon the quality of its top scientific and management personnel. Accordingly,
the Committee attempts to set base salary for the Company's executive officers
at levels that are competitive with compensation paid to top executives of
similarly situated biotechnology companies, and not significantly below cash
compensation available to the Company's key executives through alternative
employment. However, because of the Company's current and historical need to
conserve its cash resources, rewards for Company or individual performance have
generally taken the form of stock-based awards.
The Committee administers the Plan pursuant to which the Company may
grant various stock-based awards intended to compensate Company personnel and
align the interests of the recipients with those of the Company's stockholders.
To date, only stock options have been granted under the Plan, although the
Committee may, in the future, utilize other types of Incentive Awards available
under the Plan. The Committee also administers options previously granted under
the Company's 1989 Incentive Stock Option Plan and 1989 Nonstatutory Stock
Option Plan.
Because of the Company's need to conserve cash, the Committee has used
stock options to reward executives for individual and Company performance and to
provide incentives for vigorous pursuit of the Company's goals. In general,
executive officers receive a substantial grant of stock options upon joining the
Company. The Committee believes that these initial grants serve two purposes.
First, they help to make up for any discrepancy between the cash compensation
paid by the Company and salaries and bonuses available from more established
employers who would compete for the services of the Company's executives.
Second, the initial option grants are intended to give the recipients a
meaningful stake in the Company's long-term performance, with any ultimate
realization of significant value from those options being commensurate with
returns to stockholders on investments in the Company's stock.
In addition to initial grants, executive officers are eligible to
receive periodic option grants based upon the performance of the Company and
their individual progress and contributions. Such grants, if any, are determined
by the Committee with the input and recommendation of the Company's Chief
Executive Officer. In determining award levels, the Committee emphasizes Company
performance and the contributions made by individual executives to that
performance. The Committee believes that such a retrospective analysis is most
appropriate and practicable for a development-stage biopharmaceutical enterprise
like the Company, which operates in an uncertain environment and without the
same sorts of standard measures of performance as are available to more seasoned
companies.
The Company faces significant challenges in the coming years and will
rely heavily upon the Chief Executive Officer for leadership, strategic
direction and operational effectiveness. The Company's goals over the next few
years include succeeding in clinical trials of LJP 394 and additional drug
candidates, forming additional strategic alliances, raising additional
financing, and building a strong organization to support the Company's
anticipated growth. The Chief Executive Officer will have ultimate
responsibility for these goals as part of maximizing stockholders' returns on
their investments in the Company and the Committee believes stockholders are
best served if the Chief Executive Officer has significant incentives to meet
these expectations. In 1998, the Chief Executive Officer received options to
purchase up to 150,000 shares of Common Stock. The Committee set the Chief
Executive Officer's options on the basis of its qualitative evaluation of the
Chief Executive Officer's contributions. The Committee did not attempt to apply
any specific quantitative measures to the Chief Executive Officer's
compensation, or to provide any specific dollar value of option-based
compensation to the Chief Executive Officer, due to the difficulty of
determining the long-term value of an investment in the Company's stock.
COMPENSATION COMMITTEE
Thomas H. Adams, Ph.D.
W. Leigh Thompson, M.D., Ph.D.
Robert A. Fildes, Ph.D.
11
<PAGE> 15
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors consists
of Dr. Adams, Dr. Thompson and Dr. Fildes. No current member of the Compensation
Committee is a current or former officer or employee of the Company. There are
no Compensation Committee interlocks between the Company and other entities
involving the Company's executive officers and Board members who serve as
executive officers or Board members of such other entities.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on
the Company's Common Stock for the period beginning June 3, 1994 (the date on
which the Company's Common Stock was first publicly traded) and ending on
December 31, 1998 with the Center for Research in Securities Prices ("CRSP")
Total Return Index for the Nasdaq Stock Market (U.S. Companies) and the CRSP
Total Return Index for Nasdaq Pharmaceutical Stocks (comprising all companies
listed in the Nasdaq Stock Market under SIC 283). The graph assumes that $100
was invested on June 3, 1994 in the Company's Common Stock and each index and
that all dividends were reinvested. No cash dividends have been declared on the
Company's Common Stock. Although the graph would normally cover a five-year
period, the Company's Common Stock has been publicly traded only since June 3,
1994, and, therefore, the graph commences as of such date. The comparisons in
the graph are required by the Securities and Exchange Commission and are not
intended to forecast or be indicative of possible future performance of the
Company's Common Stock.
<TABLE>
<CAPTION>
6/3/94 12/30/94 12/29/95 12/31/96 12/31/97 12/31/98
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
LA JOLLA PHARMACEUTICAL COMPANY $ 100 $ 45 $ 100 $ 120 $ 89 $ 90
NASDAQ - US 100 102 144 177 218 306
NASDAQ - PHARMACEUTICALS 100 97 177 178 184 235
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the directors and
officers of the Company and persons who own more than 10% of the Company's
equity securities are required to report their initial ownership of the
Company's equity securities and any subsequent changes in that ownership to the
Securities and Exchange Commission and the Nasdaq National Market. Specific due
dates for these reports have been established, and the Company is required to
disclose in this Proxy Statement any late filings during the fiscal year ended
December 31, 1998. To the Company's knowledge, based solely on its review of the
copies of such reports required to be furnished to the Company during the fiscal
year ended December 31, 1998, all of these reports were timely filed.
12
<PAGE> 16
PROPOSAL 2
AMENDMENT TO THE COMPANY'S 1994 STOCK INCENTIVE PLAN
TO INCREASE AVAILABLE SHARES
The maximum number of shares of the Company's Common Stock that may be
issued pursuant to awards under the Company's 1994 Stock Incentive Plan is
currently 1,750,000, and as of April 13, 1999, options covering a total of
1,749,783 shares are outstanding or have been exercised under the Plan. Of these
options, options covering a total of 100,000 shares have been issued contingent
upon stockholder approval of Proposal 3. Accordingly, only 217 shares remain
available for new grants. The Company relies heavily upon the Plan to recruit,
retain, and reward qualified employees and directors, and the Company's Board of
Directors has unanimously approved, subject to approval by the Company's
stockholders, an amendment of the Plan to make available an additional 750,000
shares of the Company's Common Stock (subject to antidilution adjustments) under
the Plan.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Each of the current directors and each of the executive officers
designated from time to time by the Compensation Committee of the Board of
Directors (the "Committee"), which is the Plan's administrative committee, is
eligible to receive awards under the Plan. Pursuant to the Plan, each of the
executive officers, among others, is eligible to receive Incentive Awards. If
Proposal 3 is approved, each non-employee director will also be eligible to
receive Incentive Awards, and will receive the Incentive Award of an option to
purchase up to 20,000 shares of the Company's Common Stock that was made on
December 3, 1998, contingent upon stockholder approval of Proposal 3. Each of
the director nominees, if re-elected at the Meeting, will automatically receive
a Non-Employee Directors' Option to purchase up to 5,000 shares of the Company's
Common Stock on May 13, 1999, and on the dates of future annual meetings if
continuing as a director.
SUMMARY OF THE 1994 STOCK INCENTIVE PLAN
The following is a summary of the principal features of the Plan as in
effect and as proposed to be amended by this Proposal 2 and by Proposal 3.
PURPOSE AND ELIGIBILITY. The purpose of the Plan is to advance the
interests of the Company and its stockholders by providing eligible persons with
financial incentives to promote the success of the Company's business
objectives, by increasing eligible persons' proprietary interest in the Company,
and by giving the Company a means to attract and retain directors of appropriate
experience and stature. Any officer, key employee, consultant or advisor of the
Company designated from time to time by the Committee is eligible to receive
grants of stock options, restricted stock, stock appreciation rights, stock
payments, performance awards of cash and/or stock, and dividend equivalents
under the Plan ("Incentive Awards"). Currently, it is estimated that
approximately 122 persons are eligible for selection to receive Incentive
Awards, consisting of approximately 109 employees, nine executive officers, and
four consultants. If Proposal 3 is approved, the Company's directors, including
members of the Committee, would be eligible to receive Incentive Awards,
increasing the number of persons eligible for selection to 127. In addition to
Incentive Awards, as discussed below, each of the Company's non-employee
directors is entitled to receive an automatic, one-time grant of a stock option
upon becoming a director, and an annual grant of an additional stock option upon
each re-election as a director ("Non-Employee Directors' Options").
STOCK OPTIONS. Stock options granted under the Plan ("Options") may be
incentive stock options, which are intended to qualify under the provisions of
Section 422 of the Internal Revenue Code ("Incentive Options"), or non-qualified
stock options, which do not so qualify ("Non-qualified Options"). The exercise
price for each Option (other than Non-Employee Directors' Options) shall be
determined by the Committee at the date of grant. The exercise price of each
Option granted under the Plan generally may not be set below the fair market
value of the underlying Common Stock on the date of grant, subject to
permissible discounts of up to 15% from fair market value for Non-qualified
Options in lieu of salary or bonus. The exercise price of any Option may be paid
in cash or any other consideration the Committee deems acceptable, including
delivery of capital stock of the Company (surrendered by the optionee or
withheld from the shares otherwise deliverable upon exercise) or surrender of
other awards previously granted to the recipient exercising the Option. The
Committee may allow the Company to loan the exercise price to the optionee
and/or to allow exercise in a broker-assisted transaction in which the exercise
price will not be received until after exercise, if the exercise of the Option
is followed by an immediate sale of some of the underlying shares and a portion
of the sales proceeds is dedicated to full payment of the exercise price.
13
<PAGE> 17
Options (other than Non-Employee Directors' Options) granted under the
Plan vest, become exercisable, and terminate as determined by the Committee. All
Options granted under the Plan may be exercised at any time after they vest and
before their expiration date, provided that no Option may be exercised more than
ten years after its grant. In the absence of a specific written agreement to the
contrary, an employee's Options will generally terminate (a) immediately upon
termination of the recipient's employment with the Company for just cause; (b)
12 months after death or permanent disability; (c) 24 months after normal
retirement; and (d) three months in the case of Incentive Stock Options, and six
months in the case of Non-qualified Stock Options, after termination of
employment for any other reason, in each case subject to earlier termination on
the Option's original expiration date. Notwithstanding the foregoing, however,
the Committee may designate shorter or longer periods after termination of
employment to exercise any Option (other than a Non-Employee Directors' Option).
Options cease to vest upon termination of employment, but the Committee may
accelerate the vesting of any or all Options that had not become exercisable on
or prior to the date of such termination. If Proposal 3 is approved, the
Committee will determine, on a case-by-case basis, what the effects will be of
termination of a non-employee director's service on the term of the Option
(other than a Non-Employee Directors' Option). For each of the grants of Options
to non-employee directors made on December 3, 1998, contingent upon stockholder
approval of Proposal 3, in the event that the non-employee director ceases to be
a director of the Company, the Option granted to him is exercisable, to the
extent exercisable at that date, for a period of five years after that date or,
if sooner, until the expiration of the Option according to its terms.
OTHER AWARDS. In addition to Options, the Committee may also grant
performance awards, restricted stock, stock appreciation rights ("SARs"), stock
payments and dividend equivalents. Performance awards entitle the recipient to a
payment in cash or in shares of Common Stock upon the satisfaction of certain
performance criteria. Shares of restricted stock may be granted by the Committee
to recipients who may not transfer the restricted shares until the restrictions
are removed or expire. Stock appreciation rights, either related or unrelated to
Options, entitle the recipient to payment of the difference between the fair
market value of a share of Common Stock and the related exercisable Option or
initial base amount, multiplied by the number of shares as to which such SAR is
exercised. The Committee may also approve stock payments of the Company's Common
Stock to any eligible person or grant dividend equivalents payable in cash,
Common Stock, or other awards to recipients of Options, SARs, or other awards
denominated in shares of Common Stock. For all such awards, the Committee shall
generally determine the relevant criteria, terms, and restrictions.
NON-EMPLOYEE DIRECTORS' OPTIONS. Under the Plan, each of the Company's
non-employee directors automatically receives, upon becoming a non-employee
director, a one-time grant of an option to purchase up to 40,000 shares of the
Company's Common Stock at an exercise price equal to the fair market value of a
share of the Common Stock on the date of grant. These options have a term of ten
years and vest with respect to 25% of the underlying shares on the grant date
and with respect to an additional 25% of the underlying shares on the date of
each of the first three annual stockholders' meetings following the grant date
(or, if an annual meeting occurs within six months after the grant date, then on
the second, third and fourth anniversaries of the grant date), but only if, on
the date of each such annual meeting, the recipient is continuing as a director
for the ensuing year.
Further, each non-employee director of the Company, upon each
re-election to the Board, automatically receives a grant of an additional option
to purchase up to 5,000 additional shares of the Company's Common Stock. These
options have a term of ten years and will vest and become exercisable upon the
earlier to occur of (i) the first anniversary of the grant date or (ii)
immediately prior to the annual meeting of stockholders of the Company next
following the grant date, if the director has served as a director from the
grant date to such earlier date. The exercise price for these options is the
fair market value of the Company's Common Stock on the date of their grant.
If Proposal 5 to adopt the Classified Board Provisions is approved, the
Board of Directors has resolved to immediately amend this provision in the Plan
regarding an automatic annual grant of an additional option to provide for the
automatic annual grant of the option to purchase up to 5,000 shares of the
Company's Common Stock on the date of each of the Company's Annual Meetings of
Stockholders to each director who is either re-elected at such Annual Meeting of
Stockholders or who is continuing as a director without being re-elected due to
the classification of the Board of Directors.
14
<PAGE> 18
PLAN PROVISIONS REGARDING SECTION 162(m) OF THE INTERNAL REVENUE CODE.
In general, Section 162(m) of the Code imposes a $1 million limit on the amount
of compensation that may be deducted by the Company in any tax year with respect
to the Chief Executive Officer of the Company and its other four most highly
compensated employees, including any compensation relating to an award under the
Plan. The Plan is designed to allow the Company to grant awards that are not
subject to the $1 million limit of Section 162(m). No one person may be granted
any awards with respect to more than 250,000 shares of Common Stock or in excess
of $1 million in any one calendar year if such grant would otherwise be subject
to Code Section 162(m). Furthermore, if Code Section 162(m) would otherwise
apply and if the amount of compensation a person would receive under an award is
not based solely on an increase in the value of the underlying Common Stock of
the Company after the date of grant or award, the Committee is authorized to
condition the grant, vesting, or exercisability of such an award on the
attainment of a preestablished objective performance goal. The Plan defines a
preestablished objective performance goal to include one or more of the
following performance criteria: (a) cash flow, (b) earnings per share (including
earnings before interest, taxes, and amortization), (c) return on equity, (d)
total stockholder return, (e) return on capital, (f) return on assets or net
assets, (g) income or net income, (h) operating margin, (i) return on operating
revenue, (j) attainment of stated goals related to the Company's research and
development or clinical trials program, (k) attainment of stated goals related
to the Company's capitalization, costs, financial condition or results of
operations, and (l) any other similar performance criteria.
SECURITIES SUBJECT TO PLAN. No more than 1,750,000 shares of Common
Stock (2,500,000 shares if Proposal 2 is approved) may be issued pursuant to or
upon exercise of awards granted under the Plan. Shares of Common Stock subject
to unexercised portions of any award that expire, terminate or are canceled, and
shares of Common Stock issued pursuant to an award that are reacquired by the
Company pursuant to the terms of the award under which the shares were issued,
will again become eligible for the grant of further awards under the Plan. The
number and kind of shares of Common Stock or other securities available under
the Plan in general, as well as the number and kind of shares of Common Stock or
other securities subject to outstanding awards and the exercise price per share
of such awards, may be proportionately adjusted to reflect stock splits, stock
dividends, and other capital stock transactions. If the Company is the surviving
corporation in any merger or consolidation, each outstanding Option will entitle
the optionee to receive the same consideration received by holders of the same
number of shares of the Company's Common Stock in such merger or consolidation.
In the event of a change in control, all non-employee directors' options and any
other awards specified by the Committee shall immediately vest and become
exercisable, and all conditions thereto shall be deemed to have been met. For
purposes of the Plan, a change in control includes a reorganization, merger or
consolidation in which more than 50% of voting securities of the Company are not
represented by holders of such securities prior thereto; or a liquidation or
dissolution of the Company; or the acquisition of more than 40% or more of the
Company's voting securities by any person; or a majority change in Board
membership without Board approval.
On March 17, 1999, the market value of the Company's Common Stock was
$3.5625 per share, options to purchase 27,130 shares had been exercised under
the Plan, Options to purchase 1,723,053 shares were outstanding under the Plan
at exercise prices ranging from $2.00 to $8.31 per share, and no shares remained
available for future awards under the Plan. Of these options, options covering a
total of 100,000 shares were issued contingent upon stockholder approval of
Proposal 3. If Proposal 2 is approved, an additional 750,000 shares will be
available for future awards under the Plan.
ADMINISTRATION, AMENDMENT AND TERMINATION. The Plan is administered by
the Committee of the Board, which consists of at least two non-employee
directors of the Company appointed by the Company's Board, each of whom is
required to be "disinterested" within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended, provided however, that the Board
may, in lieu of the Committee, exercise any authority granted to the Committee
under the Plan. The Committee has the authority to interpret the Plan and any
agreements defining the rights and obligations of recipients of awards granted
under the Plan; to determine the terms and conditions of awards; to prescribe,
amend and rescind the rules and regulations of the Plan; and to make all other
determinations necessary or advisable for the administration of the Plan. If
awards are to be made to persons subject to Section 162(m) and such awards are
intended to constitute performance-based compensation, then each of the
Committee's members must be an "outside director," as such term is defined in
Section 162(m).
The Committee, in its discretion, selects from the class of eligible
persons those individuals to whom awards will be granted and determines the
nature, dates, amounts, exercise prices, vesting periods, and other
15
<PAGE> 19
relevant terms of such awards. The Committee may, with the consent of the
recipient of an award, modify the terms and conditions, accelerate or extend the
vesting or exercise period, and adjust or reduce the purchase price of such
award. However, the Committee has no authority or discretion with respect to
recipients, timing, vesting, underlying shares or exercise price of non-employee
directors' options, which matters are specifically governed by the provisions of
the Plan. Awards may be granted under the Plan until the tenth anniversary of
the Plan's effective date.
FEDERAL INCOME TAX CONSEQUENCES. The following is a brief description of
the federal income tax treatment which will generally apply to Options and other
awards granted under the Plan, based on federal income tax laws in effect on the
date of this proxy statement. The exact federal income tax treatment of Options
and other awards will depend on the specific circumstances of the recipient. No
information is provided herein with respect to estate, inheritance, gift, state
or local tax laws, although there may be certain tax consequences upon the
receipt or exercise of an option or other award or the disposition of any
acquired shares under those laws.
INCENTIVE OPTIONS. Generally, the optionee is not taxed and the Company
is not entitled to a deduction on the grant or the exercise of an Incentive
Option. If the optionee sells the shares acquired upon the exercise of an
Incentive Option ("Incentive Option Shares") at any time after the later of (a)
one year after the date of transfer of shares to the optionee pursuant to the
exercise of such Incentive Option or (b) two years after the date of grant of
such Incentive Option (the "Incentive Option holding period"), then the optionee
will recognize capital gain or loss equal to the difference between the sales
price and the exercise price paid for the Incentive Option Shares, and the
Company will not be entitled to any deduction. If the optionee disposes of the
Incentive Option Shares at any time during the Incentive Option holding period,
then (1) the optionee will recognize capital gain in an amount equal to the
excess, if any, of the sales price over the fair market value of the Incentive
Option Shares on the date of exercise, (2) the optionee will recognize ordinary
income equal to the excess, if any, of the lesser of the sales price or the fair
market value of the Incentive Option Shares on the date of exercise, over the
exercise price paid for the Incentive Option Shares, (3) the optionee will
recognize capital loss equal to the excess, if any, of the exercise price paid
for the Incentive Option Shares over the sales price of the Incentive Option
Shares, and (4) the Company will generally be entitled to a deduction in an
amount equal to the amount of ordinary income recognized by the optionee.
For purposes of computing an optionee's "alternative minimum tax," the
amount by which the fair market value of Incentive Option Shares on the date of
exercise (or such later date as discussed below under "SPECIAL RULES FOR
INSIDERS") exceeds the exercise price will be included as a positive adjustment
in the calculation of an optionee's "alternative minimum taxable income"
("AMTI"). The "alternative minimum tax" imposed on individual taxpayers is
generally equal to the amount by which 26% or 28% (depending on the optionee's
AMTI) of the individual's AMTI (reduced by certain exemption amounts) exceeds
his or her regular income tax liability for the year. A taxpayer's alternative
minimum tax attributable to this spread may be credited against the taxpayer's
regular tax liability in later years to the extent that the regular tax
liability exceeds the alternative minimum tax in any such year.
NON-QUALIFIED OPTIONS. The grant of a Non-qualified Option is generally
not a taxable event for the optionee. Upon exercise of the option, the optionee
will generally recognize ordinary income in an amount equal to the excess of the
fair market value of the stock acquired upon exercise of the Non-qualified
Option ("Non-qualified Option Shares") (determined as of the date of the
exercise) over the exercise price of such option, and the Company will be
entitled to a deduction equal to such amount. See "SPECIAL RULES FOR INSIDERS,"
below. A subsequent sale of the Non-qualified Option Shares generally will give
rise to capital gain or loss equal to the difference between the sales price and
the sum of the exercise price paid for such shares plus the ordinary income
recognized with respect to such shares. Such gain or loss will be treated as
short-term or long-term depending on the optionee's holding period for the
shares involved in the disposition. If an optionee receives a Non-qualified
Option having an exercise price that is only a small fraction of the value of
the underlying Non-qualified Option Shares on the date of grant, such optionee
may be required to include the value of the option in taxable income at the time
of grant.
SPECIAL RULES FOR INSIDERS. If the grant of an option is not approved by
the Board or a committee of the Board that is composed solely of two or more
"non-employee directors" (as such term is defined under Rule 16b-3 of the
Exchange Act), and if an optionee is a director, officer or stockholder subject
to Section 16 of the Securities Exchange Act of 1934 (an "Insider") and
exercises an Option within six months of the date of grant, then the timing
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<PAGE> 20
of the recognition of any ordinary income should be deferred until (and the
amount of ordinary income should be determined based on the fair market value
(or sales price in the case of a disposition) of the Common Stock upon) the
earlier of the following two dates: (i) six months after the date of grant or
(ii) a disposition of the Common Stock, unless the Insider makes an election
under Section 83(b) of the Code (an "83(b) Election") within 30 days after
exercise to recognize ordinary income based on the value of the Common Stock on
the date of exercise. In addition, special rules apply to an Insider who
exercises an option having an exercise price greater than the fair market value
of the underlying Common Stock on the date of exercise.
RESTRICTED STOCK. Unless the recipient makes an 83(b) Election (as
defined above) within 30 days after the receipt of the restricted stock, the
recipient is not taxed and the Company is not entitled to a deduction until the
restriction lapses, and at that time the recipient will recognize ordinary
income equal to the difference between the then fair market value of the Common
Stock and the amount, if any, paid by the recipient for the Common Stock, and
the recipient's tax basis in the Common Stock will equal the then fair market
value of the Common Stock. If the recipient makes a timely 83(b) Election, the
recipient will recognize ordinary income at the time of the election equal to
the difference between the fair market value of the restricted stock on the date
of grant and the amount, if any, paid by the recipient for the Common Stock, and
the recipient's tax basis in the Common Stock will equal the fair market value
of the Common Stock on the grant date. Any subsequent sale of the Common Stock
by the recipient generally will, depending upon the length of the holding period
beginning just after the date the restriction on the Common Stock lapses or
where an 83(b) Election is made just after the grant date, be treated as long or
short term capital gain (loss) equal to the difference between the sale price
(the recipient's tax basis) and the recipient's tax basis (sale price). The
Company generally will be entitled to a deduction in an amount equal to the
ordinary income recognized by the recipient.
PERFORMANCE AWARDS AND SARS. Generally, the recipient of a performance
award or a holder of a SAR will recognize ordinary income equal to the amount
paid by the Company under either arrangement on the date the recipient or holder
receives payment from the Company. If the Company places a limit on the amount
that will be payable under a SAR, the holder may recognize ordinary income equal
to the value of the holder's right under the SAR at the time the value of such
right equals such limit and the SAR is exercisable. The Company will generally
be entitled to a deduction in an amount equal to the ordinary income recognized
by the recipient or holder.
MISCELLANEOUS TAX ISSUES. Special rules will apply in cases where an
optionee pays the exercise or purchase price of the Option or applicable
withholding tax obligations under the Plan by delivering previously owned Common
Stock or by reducing the amount of Common Stock otherwise issuable pursuant to
the Option. The surrender or withholding of such shares will in certain
circumstances result in the recognition of income with respect to such shares.
The Plan provides that, in the event of certain changes in ownership or control
of the Company, the right to exercise Options otherwise subject to a vesting
schedule may be accelerated. In the event such acceleration occurs and depending
upon the individual circumstances of the recipient, certain amounts with respect
to such Options may constitute "excess parachute payments" under the "golden
parachute" provisions of the Internal Revenue Code. Pursuant to these
provisions, a recipient will be subject to a 20% excise tax on any "excess
parachute payments" and the Company will be denied any deduction with respect to
such payment. The Company may be denied a deduction for compensation (including
compensation attributable to Options) to certain officers of the Company to the
extent the compensation exceeds $1 million in a given year.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the shares present or represented
by proxy and entitled to vote at the Meeting, at which a quorum representing a
majority of all outstanding shares of Common Stock of the Company is present and
entitled to vote, is required to approve Proposal 2. THE BOARD OF DIRECTORS
RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL 2.
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PROPOSAL 3
AMENDMENT TO THE COMPANY'S 1994 STOCK INCENTIVE PLAN
TO MAKE NON-EMPLOYEE DIRECTORS, INCLUDING COMMITTEE MEMBERS,
ELIGIBLE TO RECEIVE INCENTIVE AWARDS UNDER THE PLAN
Under the Plan as currently drafted, non-employee directors and members
of the Committee are not eligible to receive Incentive Awards (as defined above
in "Proposal 2 -- Summary of the 1994 Stock Incentive Plan") under the Plan and
are only eligible to receive Non-Employee Directors' Options (as defined above
in "Proposal 2 -- Summary of the 1994 Stock Incentive Plan"). In December of
1998, the Board unanimously voted to amend the Plan, subject to stockholder
approval, to include non-employee directors, including Committee members, among
the group of persons eligible to receive Incentive Awards, and granted an option
to purchase up to 20,000 shares of the Company's Common Stock to each of the
Company's five non-employee directors. These option grants were made contingent
upon stockholder approval of this Proposal 3.
The Company relies heavily upon the Plan to recruit, retain, and reward
qualified directors. The Board's decision to amend the Plan to make non-employee
directors, including Committee members, eligible to receive Incentive Awards was
based on its desire to remain competitive with other boards in order to enable
the Company to retain and attract qualified non-employee directors. Neither the
Board nor the Committee has any present intentions to award Incentive Awards to
the non-employee directors other than the December 3, 1998, grant of options to
its non-employee directors contingent on stockholder approval of this Proposal 3
but may, in the future, grant additional Incentive Awards to its non-employee
directors. For a summary of the Plan as currently in effect and as proposed to
be amended by Proposal 2 and this Proposal 3, see "Proposal 2 -- Summary of the
1994 Stock Incentive Plan."
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
If Proposal 3 is approved, each of the current non-employee directors,
including Committee members, would receive an option to purchase up to 20,000
shares of the Company's Common Stock, as more fully described below. In
addition, the non-employee directors, including Committee members, would be
eligible to receive future Incentive Awards as determined by the Committee or
the Board. These Incentive Awards would be in addition to the Non-Employee
Directors' Options that each non-employee director, including Committee members,
is currently automatically entitled to receive under the Plan.
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<PAGE> 22
The table below summarizes certain information with respect to awards
granted to non-employee directors on December 3, 1998, which were contingent
upon stockholder approval of Proposal 3:
NEW PLAN BENEFITS
- --------------------------------------------------------------------------------
1994 STOCK INCENTIVE PLAN
- --------------------------------------------------------------------------------
Dollar Value Number of
Name at 12/31/98 Shares
- ---- ----------- ------
Non-Employee Directors(1) $87,500(2) 100,000(3)
- ----------------------
(1) Includes all five current non-employee directors: Thomas H. Adams,
Ph.D., William E. Engbers, Robert A. Fildes, Ph.D., Joseph Stemler, and
W. Leigh Thompson, M.D., Ph.D.
(2) This amount represents the difference between the exercise price of
options and the market price of the Company's Common Stock on December
31, 1998 (the last trading day of 1998). The exercise price of each
option is $3.625 per share, the fair market value of the Company's
Common Stock on the date of grant (December 3, 1998). The closing price
of the Company's Common Stock on December 31, 1998 on the Nasdaq
National Market was $4.50. Only one-third of the options represented by
this table were exercisable on December 31, 1998.
(3) Each of the non-employee directors received an option to purchase up to
20,000 shares of the Company's Common Stock, contingent upon stockholder
approval of Proposal 3. Each option vests one-third on the date of
grant, December 3, 1998, and one-third on each of the first and second
anniversaries of the grant date.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the shares present or represented
by proxy and entitled to vote at the Meeting, at which a quorum representing a
majority of all outstanding shares of Common Stock of the Company is present and
entitled to vote, is required to approve Proposal 3. THE BOARD OF DIRECTORS
RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL 3.
PROPOSAL 4
AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION - INCREASE IN AUTHORIZED COMMON STOCK
The Board of Directors has voted unanimously to authorize an amendment
to the Company's Restated Certificate of Incorporation to increase the number of
authorized shares of the Company's Common Stock to 100,000,000 and to recommend
such proposed amendment to the stockholders for adoption.
Article IV of the Company's Restated Certificate of Incorporation
currently provides that the Company is authorized to issue 32,000,000 shares of
Common Stock. If adopted, the proposed amendment to Article IV of the Restated
Certificate of Incorporation would provide that the maximum number of shares of
Common Stock which the Company is authorized to issue is 100,000,000, thus
increasing the number of authorized shares of Common Stock by 68,000,000.
As of March 17, 1999, the Company had issued 20,110,103 shares of Common
Stock and had reserved for issuance an additional 4,809,382 shares of Common
Stock, for a total of 24,919,485 shares (78%) of the Company's authorized number
of shares of Common Stock issued and outstanding or reserved for issuance. If
the proposed amendment is adopted, there will be 75,080,515 shares of
authorized, unissued and unreserved Common Stock.
The Board of Directors has no immediate plans, understandings,
agreements or commitments to issue a significant number of authorized shares of
Common Stock. However, the Board of Directors believes that it is necessary,
desirable and in the best interests of the Company and its stockholders to
increase the number of shares of Common Stock that the Company is authorized to
issue to enable the Company to take advantage of the nation's capital markets in
the future and provide the Company the ability to raise capital, undertake
financings, increase
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<PAGE> 23
shares of Common Stock reserved for issuance pursuant to stock incentive plans,
establish strategic relationships with other companies, or make future
acquisitions through the issuance of Common Stock and debt or other securities
that are convertible into Common Stock. No further action or authorization by
the Company's stockholders would then be necessary prior to any issuance of
additional shares, except as may be required for a particular transaction by
applicable law or regulatory agencies or by the rules of any stock exchange or
automated quotation system on which the Company's securities may then be listed
or quoted. The authorization will avoid the necessity of delays and increased
costs in obtaining authorized capital stock for these purposes in the future.
The Board of Directors' purpose in proposing the amendment to Article IV
is to provide the Company with the ability to meet its future capital needs.
Although not a factor in the Board of Directors' decision to propose the
amendment, an effect of this amendment may be to allow the Board of Directors to
make it more difficult or to discourage an attempt to obtain control of the
Company by means of a merger, tender offer, proxy contest or otherwise, and
thereby protect the continuity of current management. The Board of Directors
would then have additional shares of Common Stock available, unless prohibited
by applicable law or regulatory agencies or by the rules of any stock exchange
or automated quotation system on which the Company's securities were then listed
or quoted, for a sale of shares, merger, consolidation or similar transaction in
which the number of the Company's outstanding shares would be increased and
would thereby dilute the interest of a party attempting to take control of the
Company. In addition, more shares of Common Stock would then be available should
the Company's Stockholder Rights Plan, dated December 3, 1998, be triggered.
Each additional share of Common Stock authorized by the proposed
amendment will have the same rights and privileges as each share of Common Stock
currently authorized and outstanding. Stockholders of Common Stock have no
preemptive rights to receive or purchase any shares of the currently authorized
but unissued Common Stock or any of the shares authorized by the proposed
amendment.
TEXT OF PROPOSED AMENDMENT
ARTICLE IV
AUTHORIZED CAPITAL STOCK
The Corporation is authorized to issue two classes of stock designated
"Common Stock" and "Preferred Stock." The number of shares of Common Stock that
the Corporation is authorized to issue is 100,000,000; the number of shares of
Preferred Stock that the Corporation is authorized to issue is 8,000,000. The
Board is hereby authorized to issue the shares of Preferred Stock in one or more
series, to fix the number of shares of any such series of Preferred Stock, to
determine the designation of any such series, and to fix the rights,
preferences, and privileges and the qualifications, limitations or restrictions
of the series of Preferred Stock to the full extent permitted under the Delaware
General Corporation Law. The authority of the Board with respect to any series
of Preferred Stock shall include, without limitation, the power to fix or alter
the dividend rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption (including sinking fund provisions, if any), the redemption
price or prices, and the liquidation preferences and the number of shares
constituting any such additional series and the designation thereof, or any of
them; and to increase or decrease the number of authorized shares of any series
subsequent to the issue of that series, but not below the number of shares of
such series then outstanding. In case the authorized number of shares of any
series shall be so decreased, the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series. All shares of the Common Stock and
the Preferred Stock shall have a par value of $.01 per share.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the shares present or represented
by proxy and entitled to vote at the Meeting, at which a quorum representing a
majority of all outstanding shares of Common Stock of the Company is present and
entitled to vote, is required to approve Proposal 4. THE BOARD OF DIRECTORS
RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL 4.
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<PAGE> 24
ANTI-TAKEOVER PROPOSALS
Proposals 5 and 6 in this Proxy Statement are proposals to amend the
Company's Restated Certificate of Incorporation and Amended and Restated Bylaws,
which amendments, as discussed below, may have certain anti-takeover effects.
The following section discusses the general consequences of these proposals to
stockholders of the Company and the existing anti-takeover devices that have
already been implemented by the Board of Directors, and should be read in
conjunction with the individual discussions with respect to Proposals 5 and 6.
THE ANTI-TAKEOVER PROPOSALS
The Board of Directors has evaluated the potential vulnerability of the
Company and its stockholders to the threat of unfair or coercive takeover
tactics and has considered the range of possible responses to any such threat.
Although the Board of Directors is not currently aware of any such threat, it
has unanimously approved the amendments to the Restated Certificate of
Incorporation and Amended and Restated Bylaws described in Proposal 5
(Classified Board Provisions) and Proposal 6 (elimination of stockholder action
by written consent). Proposals 5 and 6 are intended to reduce the Company's
vulnerability to unsolicited or hostile attempts to obtain control of the
Company and to increase the likelihood that stockholders will receive a fair
price for their shares in transactions relating to such attempts. Proposals 5
and 6 are not being proposed in response to any present attempt, known to the
Board of Directors, to acquire control of the Company, to obtain representation
on the Company's Board of Directors, or to take significant corporate action.
The Company has no current intentions to adopt or propose anti-takeover measures
other than Proposals 5 and 6.
Third parties frequently accumulate stock positions in public
corporations in order to force a merger or other business combination or to
commence a tender or exchange offer or other hostile attempt to acquire control
of a company. The Board of Directors believes that unsolicited takeover attempts
may be unfair or disadvantageous to the Company and its stockholders because,
among other reasons: (a) a non-negotiated takeover bid may be timed to take
advantage of temporarily depressed stock prices; (b) a non-negotiated takeover
bid may be designed to foreclose or minimize the possibility of more favorable
competing bids or alternative transactions; (c) a non-negotiated takeover bid
may involve the acquisition of only a controlling interest in the company's
stock, without affording all stockholders the opportunity to receive the same
economic benefits; and (d) a non-negotiated takeover bid may often deprive the
stockholders of an adequate opportunity to evaluate the merits of the proposed
transaction.
By contrast, in a transaction in which a potential acquiror must
negotiate with an independent board of directors, the board can and should take
account of the underlying and long-term values of the Company's business,
technology and other assets, the possibilities for alternative transactions on
more favorable terms, anticipated favorable developments in the Company's
business not yet reflected in the stock price, and equality of treatment of all
stockholders.
Proposals 5 and 6 are designed to encourage any person who might seek to
acquire control of the Company to first consult with the Company's Board of
Directors and to negotiate the terms of any tender offer or proposed business
combination. The Board of Directors believes that, for the protection of the
Company's stockholders, any proposed acquisition of control of the Company, and
any proposed business combination in which the Company might be involved, should
be thoroughly studied by the Company's Board of Directors to ensure that such
transaction would be in the best interests of the Company and its stockholders
and that all of the Company's stockholders be treated fairly. In sum, the Board
of Directors believes that Proposals 5 and 6 are prudent and in the best
interests of the Company and its stockholders and should be adopted for their
protection.
Despite the belief of the Board of Directors as to the benefits to
stockholders of Proposals 5 and 6, the proposals, if adopted, may be
disadvantageous to the extent that they have the effect of discouraging a future
takeover attempt that is not approved by the Board of Directors, but which a
majority of the stockholders may deem to be in their best interests or in which
stockholders may receive a substantial premium for their shares over the then
current market value or over their cost basis in such shares. As a result of
such effects of Proposals 5 and 6, stockholders who might wish to participate in
an unsolicited tender offer may not have an opportunity to do so. Proposals 5
and 6, if adopted, could also delay or frustrate the assumption of control by a
holder of a large block of the Company's shares or a change in the composition
of the incumbent Board of Directors, even if many
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<PAGE> 25
stockholders considered such actions to be beneficial. Furthermore, the adoption
of Proposals 5 and 6 will not ensure or guarantee that stockholders will receive
a price for their shares in connection with an acquisition of control of the
Company that reflects the value of such shares, or that the price received will
be fair or equitable, although in the opinion of the Board of Directors the
likelihood that the price will reflect such value and be fair and equitable will
be increased by the adoption of Proposals 5 and 6.
EXISTING ANTI-TAKEOVER DEVICES
In addition to Proposals 5 and 6, the Restated Certificate of
Incorporation and the Amended and Restated Bylaws currently have provisions that
could have the effect of making it more difficult for a third party to acquire,
or discouraging a third party from attempting to acquire, control of the
Company, even if such transaction or occurrence may be favorable to the
interests of some or all of the Company's stockholders.
The Restated Certificate of Incorporation currently authorizes the Board
of Directors to issue 8,000,000 shares of Preferred Stock having such rights,
preferences and privileges as designated from time to time by the Board of
Directors without stockholder approval. Under certain circumstances, the Company
could use the Preferred Stock or currently authorized but unissued shares of
Common Stock to create voting impediments or to frustrate persons seeking to
affect a takeover or otherwise gain control of the Company or to dilute the
public ownership of the Company, and thereby protect the continuity of the
Company's management. Currently, there are no shares of Preferred Stock issued
and outstanding. On December 18, 1998, the Company designated 75,000 shares of
Preferred Stock as Series A Junior Participating Preferred Stock relating to
Stockholder Rights Plan, dated as of December 3, 1998, by and between the
Company and American Stock Transfer & Trust Company (the "Rights Plan").
The Rights Plan involves distributions of one "Right" for each share of
Common Stock outstanding as of the close of business on December 18, 1998, and
for each share of Common Stock issued thereafter. Under the Rights Plan, among
other provisions, if a person or group (other than Abbott Laboratories) acquires
15% or more of the Company's outstanding Common Stock (or if Abbott Laboratories
acquires additional shares of Common Stock without the prior approval of the
Board of Directors), each Right not owned by the acquiror or its affiliates will
entitle its holder to pay the Company $30 and receive newly issued shares of
Common Stock worth $60. This ability of stockholders other than the acquiror to
purchase additional shares at a 50% discount from market, among other provisions
in the Rights Plan, would cause an unapproved takeover to be much more expensive
to an acquiror, resulting in a strong incentive to negotiate with the Board of
Directors to redeem the Rights or approve the transaction instead of pursuing a
hostile strategy.
In addition, the Company is subject to Section 203 of the Delaware
General Corporation Law, which prohibits a corporation from engaging in a
"business combination" with an "interested stockholder" (defined generally as a
person owning more than 15% of a Company's outstanding voting stock) for a
period of three years after the date of the transaction in which the person
first becomes an "interested stockholder" unless the business combination is
approved in a prescribed manner. The application of Section 203 could also have
the effect of delaying or preventing a change of control of the Company.
In addition, in December of 1998, the Board of Directors unanimously
voted to adopt three anti-takeover provisions in the Company's Amended and
Restated Bylaws. Consequently, the Company's Bylaws were amended to (a)
eliminate the ability of stockholders to call a special meeting of stockholders;
(b) require stockholders to give written notice of any proposal or the
nomination of a director to the Secretary of the Company not less than 90 days
prior to the scheduled Annual Meeting of Stockholders, or if less than 95 days'
notice or prior public disclosure of the date of the scheduled Annual Meeting of
Stockholders is given or made, not later than the close of business on the
seventh day following the earlier of the date of the first public announcement
of the date of such meeting and the date on which such notice of the scheduled
meeting was mailed; and (c) establish certain qualifications of a person that
may be elected to or appointed to fill a vacancy on the Board of Directors
during the pendency of certain business combination transactions. These
provisions may have the effect of delaying or precluding a nomination for the
election of directors or of delaying or precluding any other business of a
particular meeting if the proper procedures or director qualifications are not
met. The provisions may also discourage or deter a third party from conducting a
solicitation of proxies to elect its own slate of directors or otherwise attempt
to obtain control of the Company.
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PROPOSAL 5
AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION AND AMENDED AND RESTATED BYLAWS -
CLASSIFIED BOARD PROVISIONS
The Board of Directors has voted unanimously (a) to authorize the
adoption of the Classified Board Provisions in the Company's Restated
Certificate of Incorporation to (i) implement a classified board of directors
divided into three classes of directors, with the term of office of one of the
three classes of directors expiring each year and with each class being elected
for a three-year term, (ii) provide that only the Board of Directors, and not
the stockholders, may set by resolution the number of directors within the
specified range of five (5) to nine (9), (iii) provide that only the Board of
Directors may fill vacancies on the Board (unless no Board members remain) and
that any director appointed to fill a vacancy on the Board of Directors will
serve for the remainder of the full term of the class in which the vacancy
occurred, and (iv) require a vote of 75% of the Company's stockholders to amend
or repeal the foregoing Classified Board Provisions; (b) to amend the Company's
Amended and Restated Bylaws to conform with the Classified Board Provisions in
the Company's Restated Certificate of Incorporation; and (c) to recommend such
proposed amendments to the stockholders for adoption. The text of these proposed
amendments is set forth below.
The Amended and Restated Bylaws and the Restated Certificate of
Incorporation currently provide that the Company must have no less than five (5)
directors and no more than nine (9) directors, with the exact number to be set
from time to time by resolution of the board or the stockholders. The Board of
Directors has set the number of directors at six (6). Currently all directors
are elected to the Company's Board of Directors for a term of one year and
vacancies on the Board may be filled by the Board or the stockholders.
The proposed amendment, which would add a new Article VIII to the
Company's Restated Certificate of Incorporation, would add a provision that
divides the Board of Directors into three classes: Class 1, Class 2 and Class 3.
Initially, members of all three classes will be elected at the Meeting.
Directors then elected to Class 1 would serve until the Annual Meeting of
Stockholders to be held in 2000, and until their respective successors are
elected and qualified. Directors initially elected to Class 2 and Class 3 would
serve until the Annual Meeting of Stockholders to be held in 2001 and 2002,
respectively, and until their respective successors are elected and qualified.
Commencing with the election of directors to Class 1 in 2000, each class of
directors elected at an Annual Meeting of Stockholders would be elected to
three-year terms. Under Delaware law, where a company's certificate of
incorporation calls for a classified board of directors, the stockholders of the
company may only remove a director from the board for cause unless the company's
certificate of incorporation provides otherwise. The Company's Restated
Certificate of Incorporation does not specifically provide for removal of a
director without cause, and thus, an effect of the proposed amendment would be
to eliminate the stockholders' ability to remove a director without cause.
The proposed amendment to the Restated Certificate of Incorporation
would also eliminate the stockholders' ability to fix the number of directors
from time to time by resolution, within the range of five (5) to nine (9)
directors, leaving the Board of Directors with sole authority to fix the number
of directors from time to time within this range.
The proposed amendment would also provide that vacancies due to
resignation, death, increases in the number of directors, or any other cause
would be filled only by the Board of Directors (unless there are no directors,
in which case vacancies would be filled by the stockholders), keeping each class
of directors as nearly equal in number as possible. In addition, any new
director appointed to fill a vacancy on the Board of Directors will serve for
the remainder of the full term of the class in which the vacancy occurred,
rather than until the next annual meeting. These provisions relating to the
removal of directors and the filling of vacancies will preclude a third party
from removing incumbent directors without cause, and simultaneously gaining
control of the Board of Directors by filling the vacancies created by removal
with its own nominees.
The Classified Board Provisions include an amendment to current Article
VIII (Corporate Power) to the Restated Certificate of Incorporation, to (a) add
a provision that requires the vote of holders of 75% or more of the Company's
Common Stock to amend, repeal or modify the foregoing amendments or the
Corporate Power Article
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of the Restated Certificate of Incorporation, and (b) renumber current Article
VIII (Corporate Power) as Article X (or if Proposal 6 is not adopted by the
stockholders, as Article IX). Delaware law provides that the certificate of
incorporation of a Company may be amended by the vote of a majority of the
shares of common stock then outstanding and entitled to vote, unless the
relevant provision of the company's certificate of incorporation requires the
vote of a greater number or proportion than a majority, in which case any such
provision many not be amended, modified or repealed except by such greater vote.
The supermajority vote provision in Proposal 5 will make it more difficult for
the stockholders, following the Meeting, to modify or eliminate the new Article
VIII (Number of Directors and Term of Office), including without limitation the
provisions therein that classify the Board, that govern the filling of vacancies
on the Board, and that specify that the number of directors of the Company shall
be no less than five (5) and no greater than (9). This will enhance the
Company's ability to maintain the stability of the Board of Directors, but may
have the effect of further discouraging potentially unfriendly bids for the
shares of the Company.
Proposal 5 also calls for stockholder approval of conforming amendments
to be made to the Company's Amended and Restated Bylaws to eliminate the
stockholders' ability, currently set forth therein, to fix the number of
directors by resolution within the specified range, and to set forth the
contents of new Article VIII (Number of Directors and Term of Office) in the
Amended and Restated Bylaws.
The Board of Directors believes that the adoption of the Classified
Board Provisions is in the best interests of the Company and its stockholders.
The Classified Board Provisions will help lend continuity and stability to the
management of the Company and will assure continuity and stability in the
Board's leadership and policies. At any given time, approximately two-thirds of
the members of the Board of Directors will have had prior experience as
directors of the Company. The Board believes that this will facilitate
long-range planning, strategy and policy because it will enhance the likelihood
of continuity and stability in the composition of the Board of Directors and its
policies. The Board of Directors believes that this will permit the Board of
Directors to more effectively represent the interests of all stockholders. The
Company is not aware of any prior problems with respect to director continuity.
A classified Board of Directors will serve as an obstacle to any
attempts to obtain control of the Company through the acquisition of a
significant minority position and the election of a new slate of directors. At a
minimum, two successive annual meetings of stockholders, as opposed to one, will
normally be required in order to elect a majority of the Board, unless there is
cause and sufficient voting strength to remove a particular director or
directors. As a result, instituting a classified Board of Directors may deter
certain mergers, tender offers, proxy contests or other future attempts to
acquire control of the Company that some or a majority of stockholders may deem
to be in their best interests or the Company's best interests. As a result of
the classification's possible effect of discouraging some takeover bids or block
purchases of stock by potential acquirors, stockholders may be deprived of
opportunities to sell some or all of their shares in a tender offer which might
involve a purchase price higher than the then-current market price or a bidding
contest between competing bidders. Moreover, to the extent classification
discourages open market purchases of the Company's stock, stockholders may be
deprived of temporary increases in the market price of the Company's stock.
Classification will also make it more difficult for stockholders to change the
Company's Board of Directors at a time when the stockholders consider it
desirable to do so. Consequently, the proposed amendment will tend to perpetuate
current management. See "The Anti-Takeover Proposals."
The Board of Directors believes that the Classified Board Provisions
will provide the Board of Directors with the opportunity to negotiate with
potential acquirors to obtain a fair price for stockholders in any
change-of-control transaction, and more time to evaluate any takeover or control
proposal and thus enable it to better protect the interests of the Company and
the remaining stockholders in the event someone obtains voting control of a
majority of the Company's stock. Classification is recommended for this reason
and because the Board believes that it will enhance the quality and stability of
the Board of Directors. The Classified Board Provisions are not being proposed
in order to prevent an unsolicited takeover attempt, and the Board of Directors
is not aware of any present attempt by any person to acquire control of the
Company, obtain representation on the Board of Directors or take any significant
action that would affect the governance of the Company. The Classified Board
Provisions are permitted under Delaware law and are consistent with the rules of
the Nasdaq National Market.
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The Board of Directors has considered the advantages and possible
disadvantages of this proposal and has unanimously determined that the adoption
of this proposal is in the best interests of the Company and its stockholders.
The information concerning the current nominees for election as
directors at the Meeting and the classes to which they would be elected if this
Proposal 5 is approved is set forth above under the caption "Proposal 1 -
Election of Directors." If the proposal to adopt a classified board is not
approved and implemented, all directors elected at the Meeting will serve for a
one-year term and until their successors are duly elected and qualified.
TEXT OF PROPOSED AMENDMENTS TO RESTATED CERTIFICATE OF INCORPORATION
ARTICLE VIII
NUMBER OF DIRECTORS AND TERM OF OFFICE
The total number of directors of the Corporation shall be not less than
five (5) nor more than nine (9), with the actual total number of directors set
from time to time exclusively by resolution of the Board of Directors. The Board
of Directors shall initially consist of six members until changed by such a
resolution. There shall be three classes of directors (each, a "Class"), known
as Class 1, Class 2 and Class 3. The initial Class 1, Class 2 and Class 3
directors shall serve in office as follows: Class 1 shall retire at the first
annual meeting of stockholders following the filing of the Corporation's Amended
and Restated Certificate of Incorporation (the "Effective Date"), Class 2 shall
retire at the second annual meeting of stockholders following the Effective
Date, and Class 3 shall retire at the third annual meeting of stockholders
following the Effective Date. This annual sequence shall be repeated thereafter.
Each director in a Class shall be eligible for re-election if nominated, and
such director's seat shall be open for election of a director, at the annual
meeting of stockholders of the Corporation at which such Class shall retire, to
hold office for three years or until his successor is elected or appointed.
Any additional directors elected or appointed shall be elected or
appointed to such Class as will ensure that the number of directors in each
Class remains as nearly equal as possible, and if all Classes have an equal
number of directors or if one Class has one director more than the other two
Classes, then any additional directors elected or appointed shall be elected or
appointed to the Class that does not have more directors than any other Class
and is subject to election at an ensuing annual meeting before any other such
Class.
Vacancies due to resignation, death, increases in the number of
directors, or any other cause shall be filled only by the Board of Directors
(unless there are no directors, in which case vacancies will be filled by the
stockholders) in accordance with the rule that each Class of directors shall be
as nearly equal in number of directors as possible. Notwithstanding such rule,
in the event of any change in the authorized number of directors each director
then continuing to serve as such will nevertheless continue as a director of the
Class of which he or she is a member, until the expiration of his or her current
term or his earlier death, resignation or removal. If any newly created
directorship or vacancy on the Board of Directors, consistent with the rule that
the three Classes shall be as nearly equal in number of directors as possible,
may be allocated to one or two or more Classes, then the Board of Directors
shall allocate it to that of the available Classes whose term of office is due
to expire at the earliest date following such allocation. When the Board of
Directors fills a vacancy, the director chosen to fill that vacancy shall be of
the same Class as the director he or she succeeds and shall hold office until
such director's successor shall have been elected and qualified or until such
director shall resign or shall have been removed. No reduction of the authorized
number of directors shall have the effect of removing any director prior to the
expiration of such director's term of office.
ARTICLE X
CORPORATE POWER
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
on stockholders herein are granted subject to this reservation; provided,
however, that any
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amendment of Article VIII or of this Article X will require an affirmative vote
of the holders of seventy-five percent (75%) or more of the total voting power
of all outstanding shares of voting stock of the Corporation.
TEXT OF PROPOSED CONFORMING AMENDMENT TO AMENDED AND RESTATED BYLAWS
Section 3.01 Number of Directors and Term of Office. Unless otherwise
provided in the Corporation's certificate of incorporation, the total number of
directors of the Corporation shall be not less than five (5) nor more than nine
(9), with the actual total number of directors set from time to time exclusively
by resolution of the Board of Directors. The Board of Directors shall consist of
six members until changed by such a resolution. There shall be three classes of
directors (each, a "Class"), known as Class 1, Class 2 and Class 3. The initial
Class 1, Class 2 and Class 3 directors shall serve in office as follows: Class 1
shall retire at the first annual meeting of stockholders following the filing of
the Corporation's Amended and Restated Certificate of Incorporation (the
"Effective Date"), Class 2 shall retire at the second annual meeting of
stockholders following the Effective Date, and Class 3 shall retire at the third
annual meeting of stockholders following the Effective Date. This annual
sequence shall be repeated thereafter. Each director in a Class shall be
eligible for re-election if nominated, and such director's seat shall be open
for election of a director, at the annual meeting of stockholders of the
Corporation at which such Class shall retire, to hold office for three years or
until his successor is elected or appointed.
Any additional directors elected or appointed shall be elected or
appointed to such Class as will ensure that the number of directors in each
Class remains as nearly equal as possible, and if all Classes have an equal
number of directors or if one Class has one director more than the other two
Classes, then any additional directors elected or appointed shall be elected or
appointed to the Class that does not have more directors than any other Class
and is subject to election at an ensuing annual meeting before any other such
Class.
Vacancies due to resignation, death, increases in the number of
directors, or any other cause shall be filled only by the Board of Directors
(unless there are no directors, in which case vacancies will be filled by the
stockholders) in accordance with the rule that each Class of directors shall be
as nearly equal in number of directors as possible. Notwithstanding such rule,
in the event of any change in the authorized number of directors each director
then continuing to serve as such will nevertheless continue as a director of the
Class of which he or she is a member, until the expiration of his or her current
term or his earlier death, resignation or removal. If any newly created
directorship or vacancy on the Board of Directors, consistent with the rule that
the three Classes shall be as nearly equal in number of directors as possible,
may be allocated to one or two or more Classes, then the Board of Directors
shall allocate it to that of the available Classes whose term of office is due
to expire at the earliest date following such allocation. When the Board of
Directors fills a vacancy, the director chosen to fill that vacancy shall be of
the same Class as the director he or she succeeds and shall hold office until
such director's successor shall have been elected and qualified or until such
director shall resign or shall have been removed. No reduction of the authorized
number of directors shall have the effect of removing any director prior to the
expiration of such director's term of office.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the shares present or represented
by proxy and entitled to vote at the Meeting, at which a quorum representing a
majority of all outstanding shares of Common Stock of the Company is present and
entitled to vote, is required to approve Proposal 5. THE BOARD OF DIRECTORS
RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL 5.
PROPOSAL 6
AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION - WRITTEN CONSENT
The Board of Directors has voted unanimously to authorize an amendment
to the Company's Restated Certificate of Incorporation to provide that
stockholder action may be taken only at annual or special meetings of
stockholders and not by stockholder written consent and to recommend such
proposed amendment to the stockholders for adoption.
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Under Delaware law, unless otherwise provided in a company's certificate
of incorporation, any action required or permitted to be taken by stockholders
of a company may be taken without a meeting, without prior notice and without a
stockholder vote if a written consent setting forth the action to be taken is
signed by the holders of shares of outstanding stock having the requisite number
of votes that would be necessary to authorize such an action at a meeting of
stockholders at which all shares entitled to vote thereon were present and
voted. Currently, the Company's Restated Certificate of Incorporation does not
prohibit stockholder action by written consent.
The Board of Directors believes that the approval of Proposal 6 is
advantageous to the Company and its stockholders. Proposal 6, if approved, would
add a new Article IX (or if Proposal 5 is not approved, the new Article would be
renumbered Article VIII) to the Restated Certificate of Incorporation,
prohibiting stockholder action by written consent. This amendment would give all
stockholders of the Company entitled to vote on a particular matter notice of,
and the opportunity to participate in, the determination of any proposed action
on such matter and the chance to take judicial or other action to protect their
interests. It would enable the Company to set a record date for any stockholder
voting and would reduce the possibility of disputes or confusion regarding the
validity of purported stockholder action.
In addition, the Board of Directors believes that the elimination of
stockholder action by written consent is desirable to avoid untimely action in a
context that might not permit stockholders to have the full benefit of the
knowledge, advice and participation of the Company's management and Board of
Directors. In the event of a proposed acquisition of the Company, the Board of
Directors believes that the interests of stockholders will best be served by a
transaction that results from negotiations based on careful consideration of the
proposed terms. Although there can be no certainty as to the result of any
particular negotiations, the Board believes that the intended effect of Proposal
6 of promoting negotiations concerning any proposed acquisition of the Company
will be in the long-term interests of the Company and its stockholders.
However, any provision in the Company's Restated Certificate of
Incorporation which effectively requires a potential acquiror to negotiate with
the Company's management and Board of Directors could be characterized as
increasing management's and the Board of Directors' ability to retain their
positions with the Company and to resist a transaction which may be deemed
advantageous by certain stockholders.
The elimination of action by written consent may deter acquisitions of
the Company's stock and may delay, deter or impede stockholder action not
approved by the Board of Directors. Such actions may include stockholder
attempts to obtain control of the Board, unsolicited tender offers or other
efforts to acquire control of the Company. Proposal 6 may impede or delay, at
least until the next regularly scheduled annual meeting (and, if the proposal to
adopt the Classified Board Provisions is approved, beyond such meeting), the
initiation or consummation of business transactions, such as reorganizations,
mergers, or recapitalizations, which are opposed by the Board of Directors even
though sought by a majority of the stockholders. See "The Anti-Takeover
Proposals."
The Board of Directors has considered the advantages and possible
disadvantages of this proposal and has unanimously determined that the adoption
of this proposal is in the best interests of the Company and its stockholders.
TEXT OF PROPOSED AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION
ARTICLE IX
STOCKHOLDER ACTION BY WRITTEN CONSENT
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of such
holders and may not be effected by a consent in writing by any such holders.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the shares present or represented
by proxy and entitled to vote at the Meeting, at which a quorum representing a
majority of all outstanding shares of Common Stock of the Company is present and
entitled to vote, is required to approve Proposal 6. THE BOARD OF DIRECTORS
RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL 6.
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STOCKHOLDER PROPOSALS
Stockholders who wish to have proposals for action at the Company's 2000
Annual Meeting of Stockholders considered for inclusion in next year's proxy
statement and form of proxy must cause their proposals to be received in writing
by the Company at its address set forth on the first page of this Proxy
Statement no later than December 15, 1999. Such proposals should be addressed to
the Company's Secretary, and may be included in next year's proxy materials if
they comply with certain rules and regulations promulgated by the Securities and
Exchange Commission.
In addition, the Company's Amended and Restated Bylaws require that a
stockholder give written notice of any proposal or the nomination of a director,
addressed to the Secretary of the Company. Such written notice must be received
by the Secretary not less than 90 days nor more than 120 days prior to the
scheduled Annual Meeting of Stockholders, or if less than 95 days' notice or
prior public disclosure of the date of the scheduled Annual Meeting of
Stockholders is given or made, such written notice must be received by the
Secretary not later than the close of business on the seventh day following the
earlier of the date of the first public announcement of the date of such meeting
and the date on which such notice of the scheduled meeting was mailed. Any
notice to the Secretary regarding a stockholder proposal must include as to each
matter the stockholder proposes to bring before the meeting (a) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting, (b) the name and address,
as they appear on the Company's books, of the stockholder proposing such
business and any stockholders known by such stockholder to be supporting such
proposal, (c) the class and number of shares of the Company's stock that are
beneficially owned by the stockholder and by any other stockholder known by such
stockholder to be supporting such matter on the date of such stockholder notice,
and (d) any material interest of the stockholder in such business. Any notice to
the Secretary regarding a nomination for the election of directors must include
(a) the name and address of the stockholder who intends to make the nomination
and of the person or persons to be nominated, (b) the class and number of shares
of the Company's stock that are beneficially owned by the stockholder and a
representation that such stockholder intends to appear in person or by proxy at
the meeting and nominate the person or persons specified in the notice, (c) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such persons) pursuant to
which the nomination or nominations are to be made by the stockholder, (d) such
other information regarding each nominee as would be required to be included in
a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had the nominee been nominated, or intended to be nominated,
by the Board, and (e) the consent of each nominee to serve as a director of the
Company if so elected. Nothing in this paragraph shall be deemed to require the
Company to include in its proxy statement or the proxy relating to any annual
meeting any stockholder proposal which does not meet all of the requirements for
inclusion established by the Securities and Exchange Commission.
OTHER MATTERS
The Board of Directors of the Company does not know of any other matters
that are to be presented for action at the Meeting. If any other matters come
before the Meeting or any adjournments and postponements thereof, the persons
named in the enclosed proxy will have the discretionary authority to vote all
proxies received with respect to such matters in accordance with their judgment.
INDEPENDENT PUBLIC AUDITORS
By selection of the Company's Board of Directors, the firm of Ernst &
Young LLP has served as the Company's auditor since its incorporation in 1989.
The Board of Directors has again selected Ernst & Young LLP to serve as the
Company's independent auditors for the fiscal year ending December 31, 1999. One
or more representatives of Ernst & Young LLP are expected to be present at the
Meeting and will have an opportunity to make a statement if they so desire and
will be available to respond to appropriate questions.
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ANNUAL REPORT
The Company's Annual Report to Stockholders for calendar year ended
December 31, 1998 has been mailed to stockholders concurrently with this Proxy
Statement, but such report is not incorporated herein and is not deemed to be a
part of this proxy solicitation material.
San Diego, California
April 13, 1999
STOCKHOLDERS ARE URGED TO SPECIFY THEIR CHOICES ON, DATE, SIGN AND
RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE. PROMPT RESPONSE IS
HELPFUL, AND YOUR COOPERATION WILL BE APPRECIATED.
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Appendix A
LA JOLLA PHARMACEUTICAL COMPANY
1994 STOCK INCENTIVE PLAN
ARTICLE I
GENERAL PROVISIONS
1.01 PURPOSE OF THE PLAN.
La Jolla Pharmaceutical Company (the "COMPANY"), by action of
its Board of Directors and with the consent of its stockholders, has adopted
this La Jolla Pharmaceutical Company Stock Incentive Plan (the "PLAN") effective
as of June 10, 1994 to advance the interests of the Company and its stockholders
by (a) providing Eligible Persons with financial incentives to promote the
success of the Company's business objectives, and to increase their proprietary
interest in the success of the Company, and (b) giving the Company a means to
attract and retain directors of appropriate experience and stature.
1.02 DEFINITIONS.
Terms used herein and not otherwise defined shall have the
meanings set forth below:
(a) "AWARD" means an Incentive Award or a Nonemployee Director's
Option.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
Where the context so requires, a reference to a particular Code section shall
also refer to any successor provision of the Code to such section.
(d) "COMMISSION" means the Securities and Exchange Commission.
(e) "COMMITTEE" means the committee appointed by the Board to
administer the Plan. The Committee shall be composed entirely of members who
meet the requirements of Section 1.04(a).
(f) "COMMON STOCK" means the common stock of the Company, $0.01
par value.
(g) "DIVIDEND EQUIVALENT" means a right granted by the Company
under Section 2.07 to a holder of a Stock Option, Stock Appreciation Right, or
other Incentive Award denominated in shares of Common Stock to receive from the
Company during the Applicable Dividend Period (as defined in Section 2.07)
payments equivalent to the amount of dividends payable to holders of the number
of shares of Common Stock underlying such Stock Option, Stock Appreciation
Right, or other Incentive Award.
<PAGE> 34
(h) "ELIGIBLE PERSON" shall include officers or key employees,
consultants, and advisors of the Company (as determined by the Committee) other
than Nonemployee Directors and members of the Committee.
(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended. Where the context so requires, a reference to a particular section of
the Exchange Act or rule thereunder shall also refer to any successor provision
to such section or rule.
(j) "FAIR MARKET VALUE" of capital stock of the Company shall be
determined with reference to the closing price of such stock on the day in
question (or, if such day is not a trading day in the U.S. securities markets,
on the nearest preceding trading day), as reported with respect to the principal
market or trading system on which such stock is then traded; or, if no such
closing prices are reported, the mean between the high bid and low asked prices
that day on the principal market or national quotation system on which such
shares are then quoted; provided, however, that when appropriate, the Committee
in determining Fair Market Value of capital stock of the Company may take into
account such other factors as may be deemed appropriate under the circumstances.
Notwithstanding the foregoing, the Fair Market Value of capital stock for
purposes of grants of Incentive Stock Options shall be determined in compliance
with applicable provisions of the Code. The Fair Market Value of rights or
property other than capital stock of the Company means the fair market value
thereof as determined by the Committee on the basis of such factors as it may
deem appropriate.
(k) "INCENTIVE AWARD" means any Stock Option, Restricted Stock,
Stock Appreciation Right, Stock Payment, Performance Award or Dividend
Equivalent granted or sold to an Eligible Person under this Plan, but not a
Nonemployee Director's Option.
(l) "INCENTIVE STOCK OPTION" means a Stock Option that qualifies
as an incentive stock option under Section 422 (or any successor section) of the
Code and the regulations thereunder.
(m) "JUST CAUSE DISMISSAL" shall mean a termination of a
Recipient's employment for any of the following reasons: (i) the Recipient
violates any reasonable rule or regulation of the Board or the Recipient's
superiors or the Chief Executive Officer or President of the Company that
results in damage to the Company or which, after written notice to do so, the
Recipient fails to correct within a reasonable time; (ii) any willful misconduct
or gross negligence by the Recipient in the responsibilities assigned to him or
her; (iii) any willful failure to perform his or her job as required to meet
Company objectives; (iv) any wrongful conduct of a Recipient which has an
adverse impact on the Company or which constitutes a misappropriation of Company
assets; (v) the Recipient's performing services for any other person or entity
which competes with the Company while he or she is employed by the Company,
without the written approval of the Chief Executive Officer or President of the
Company; or (vi) any other conduct that the Board or Committee determines
constitutes Just Cause for Dismissal.
(n) "NONEMPLOYEE DIRECTOR" means a director of the Company who
qualifies as a "Nonemployee Director" under Rule 16b-3 under the Exchange Act.
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<PAGE> 35
(o) "NONEMPLOYEE DIRECTOR'S OPTION" means a Stock Option granted
to a Nonemployee Director pursuant to Article III of the Plan.
(p) "NONQUALIFIED STOCK OPTION" means a Stock Option other than
an Incentive Stock Option.
(q) "OPTION" or "STOCK OPTION" means a right to purchase stock
of the Company granted under this Plan, and can be an Incentive Stock Option or
a Nonqualified Stock Option.
(r) "PAYMENT EVENT" means the event or events giving rise to the
right to payment of a Performance Award.
(s) "PERFORMANCE AWARD" means an award, payable in cash, Common
Stock or a combination thereof, which vests and becomes payable over a period of
time upon attainment of performance criteria established in connection with the
grant of the award.
(t) "PERFORMANCE-BASED COMPENSATION" means performance-based
compensation as described in Section 162(m) of the Code and the regulations
thereunder. If the amount of compensation an Eligible Person will receive under
any Incentive Award is not based solely on an increase in the value of Common
Stock after the date of grant or award, the Committee, in order to qualify an
Incentive Award as performance-based compensation under Section 162(m) of the
Code and the regulations thereunder, can condition the grant, award, vesting, or
exercisability of such an award on the attainment of a preestablished, objective
performance goal. For this purpose, a preestablished, objective performance goal
may include one or more of the following performance criteria: (i) cash flow,
(ii) earnings per share (including earnings before interest, taxes, and
amortization), (iii) return on equity, (iv) total stockholder return, (v) return
on capital, (vi) return on assets or net assets, (vii) income or net income,
(viii) operating margin, (ix) return on operating revenue, (x) attainment of
stated goals related to the Company's research and development or clinical
trials programs, (xi) attainment of stated goals related to the Company's
capitalization, costs, financial condition, or results of operations, and (xii)
any other similar performance criteria contemplated by the regulations under
Section 162(m).
(u) "PERMANENT DISABILITY" shall mean that the Recipient becomes
physically or mentally incapacitated or disabled so that he or she is unable to
perform substantially the same services as he or she performed prior to
incurring such incapacity or disability (the Company, at its option and expense,
being entitled to retain a physician to confirm the existence of such incapacity
or disability, and the determination of such physician to be binding upon the
Company and the Recipient), and such incapacity or disability continues for a
period of three consecutive months or six months in any twelve-month period or
such other period(s) as may be determined by the Committee with respect to any
Option.
(v) "PURCHASE PRICE" means the purchase price (if any) to be
paid by a Recipient for Restricted Stock as determined by the Committee (which
price shall be at least equal to the minimum price required under applicable
laws and regulations for the issuance of
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<PAGE> 36
Common Stock which is nontransferable and subject to a substantial risk of
forfeiture until specific conditions are met).
(w) "RECIPIENT" means a person who has received an Award
hereunder.
(x) "RESTRICTED STOCK" means Common Stock that is the subject of
an award made under Section 2.04 and which is nontransferable and subject to a
substantial risk of forfeiture until specific conditions are met as set forth in
this Plan and in any statement evidencing the grant of such Incentive Award.
(y) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(z) "STOCK APPRECIATION RIGHT" or "SAR" means a right granted
under Section 2.05 to receive a payment that is measured with reference to the
amount by which the Fair Market Value of a specified number of shares of Common
Stock appreciates from a specified date, such as the date of grant of the SAR,
to the date of exercise.
(aa) "STOCK PAYMENT" means a payment in shares of the Company's
Common Stock to replace all or any portion of the compensation (other than base
salary) that would otherwise become payable to a Recipient.
1.03 COMMON STOCK SUBJECT TO THE PLAN.
(a) Number of Shares. Subject to Section 1.05(b), the maximum
number of shares of Common Stock that may be issued pursuant to Awards under the
Plan shall be 1,750,000.
(b) Source of Shares. The Common Stock to be issued under this
Plan will be made available, at the discretion of the Board or the Committee,
either from authorized but unissued shares of Common Stock or from previously
issued shares of Common Stock reacquired by the Company, including shares
purchased on the open market.
(c) Availability of Unused Shares. Shares of Common Stock
subject to unexercised portions of any Award granted under this Plan that
expire, terminate or are cancelled, and shares of Common Stock issued pursuant
to an Award under this Plan that are reacquired by the Company pursuant to the
terms of the Award under which such shares were issued, will again become
available for the grant of further Awards under this Plan.
(d) Grant Limits. Notwithstanding any other provision of this
Plan, no Eligible Person shall be granted Awards with respect to more than
250,000 shares of Common Stock in any one calendar year; provided, however, that
this limitation shall not apply if it is not required in order for the
compensation attributable to Incentive Awards hereunder to qualify as
Performance-Based Compensation. The limitation set forth in this Section 1.03(d)
shall be subject to adjustment as provided in Section 1.05(b), but only to the
extent such adjustment would not affect the status of compensation attributable
to Awards hereunder as Performance-Based Compensation.
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1.04 ADMINISTRATION OF THE PLAN.
(a) The Committee. The Plan will be administered by the
Committee, which will consist of two or more members of the Board each of whom
must be a Nonemployee Director; provided, however, that the number of members of
the Committee may be reduced or increased from time to time by the Board. In
addition, if Awards are to be made to persons subject to Section 162(m) of the
Code and such awards are intended to constitute Performance-Based Compensation,
then each of the Committee's members must also be an "outside director," as such
term is defined in the regulations under Section 162(m) of the Code.
Notwithstanding the foregoing or any provision of the Plan to the contrary, the
Board may, in lieu of the Committee, exercise any authority granted to the
Committee pursuant to the provisions of the Plan.
(b) Authority of the Committee. The Committee has authority in
its discretion to select the Eligible Persons to whom, and the time or times at
which, Incentive Awards shall be granted or sold, the nature of each Incentive
Award, the number of shares of Common Stock or the number of rights that make up
or underlie each Incentive Award, the period for the exercise of each Incentive
Award, the performance criteria (which need not be identical) utilized to
measure the value of Performance Awards, and such other terms and conditions
applicable to each individual Incentive Award as the Committee shall determine.
The Committee may grant at any time new Incentive Awards to an Eligible Person
who has previously received Incentive Awards or other grants (including other
stock options) whether such prior Incentive Awards or such other grants are
still outstanding, have previously been exercised in whole or in part, or are
cancelled in connection with the issuance of new Incentive Awards. The Committee
may grant Incentive Awards singly or in combination or in tandem with other
Incentive Awards as it determines in its discretion. The purchase price or
initial value and any and all other terms and conditions of the Incentive Awards
may be established by the Committee without regard to existing Incentive Awards
or other grants. Further, the Committee may, with the consent of an Eligible
Person, amend in a manner not inconsistent with the Plan the terms of any
existing Incentive Award previously granted to such Eligible Person.
(c) Plan Interpretation. Subject to the express provisions of
the Plan, the Committee has the authority to interpret the Plan and any
agreements defining the rights and obligations of the Company and Recipients, to
determine the terms and conditions of Incentive Awards and to make all other
determinations necessary or advisable for the administration of the Plan. The
Committee has authority to prescribe, amend and rescind rules and regulations
relating to the Plan. All interpretations, determinations and actions by the
Committee shall be final, conclusive and binding upon all parties. Any action of
the Committee with respect to the administration of the Plan shall be taken
pursuant to a majority vote or by the unanimous written consent of its members.
(d) Special Rules Regarding Article III. Notwithstanding
anything herein to the contrary, the Committee shall have no authority or
discretion as to the selection of persons eligible to receive Nonemployee
Directors' Options granted under the Plan, the number of shares covered by
Nonemployee Directors' Options granted under the Plan, the timing of such
grants, or
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the exercise price of Nonemployee Directors' Options granted under the Plan,
which matters are specifically governed by the provisions of the Plan.
(e) No Liability. No member of the Board or the Committee or any
designee thereof will be liable for any action or determination made in good
faith by the Board or the Committee with respect to the Plan or any transaction
arising under the Plan.
1.05 OTHER PROVISIONS.
(a) Documentation. Each Award granted under the Plan shall be
evidenced by an award agreement duly executed on behalf of the Company and by
the Recipient or, in the Committee's discretion, a confirming memorandum issued
by the Company to the Recipient (in either case an "AWARD DOCUMENT") evidencing
the Award and setting forth such terms and conditions applicable to the Award as
the Committee may in its discretion determine consistent with the Plan, provided
that the Committee shall exercise no discretion with respect to Nonemployee
Directors' Options, which shall reflect only the terms of the Award as set forth
in Article III and certain administrative matters dictated by the Plan. Award
Documents shall comply with and be subject to the terms and conditions of the
Plan. A copy of the Plan shall be delivered to each Award Recipient together
with the Award Document, and shall constitute a part thereof. In case of any
conflict between the Plan and any Award Document, the Plan shall control.
Various Award Documents covering the same types of Awards may but need not be
identical.
(b) Adjustment Provisions.
If (1) the outstanding shares of Common Stock of the Company are
increased, decreased or exchanged for a different number or kind of shares or
other securities, or if additional shares or new or different shares or other
securities are distributed in respect of such shares of Common Stock (or any
stock or securities received with respect to such Common Stock), through merger,
consolidation, sale or exchange of all or substantially all of the properties of
the Company, reorganization, recapitalization, reclassification, stock dividend,
stock split, reverse stock split, spin-off or other distribution with respect to
such shares of Common Stock (or any stock or securities received with respect to
such Common Stock), or (2) the value of the outstanding shares of Common Stock
of the Company is reduced by reason of an extraordinary cash dividend, an
appropriate and proportionate adjustment may be made in (x) the maximum number
and kind of shares subject to the Plan as provided in Section 1.03, (y) the
number and kind of shares or other securities subject to then outstanding
Awards, and (z) the price for each share or other unit of any other securities
subject to then outstanding Awards. No fractional interests will be issued under
the Plan resulting from any such adjustments.
(c) Continuation of Employment.
(i) Nothing contained in this Plan (or in Award
Documents or in any other documents related to this Plan or to Awards granted
hereunder) shall confer upon any Eligible Person or Recipient any right to
continue in the employ of the Company or constitute any contract or agreement of
employment or engagement, or interfere in any way with the right
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of the Company to reduce such person's compensation or other benefits or to
terminate the employment of such Eligible Person or Recipient, with or without
cause. Except as expressly provided in the Plan or in any statement evidencing
the grant of an Award pursuant to the Plan, the Company shall have the right to
deal with each Recipient in the same manner as if the Plan and any such
statement evidencing the grant of an Award pursuant to the Plan did not exist,
including, without limitation, with respect to all matters related to the
hiring, discharge, compensation and conditions of the employment or engagement
of the Recipient.
(ii) Any question(s) as to whether and when there has
been a termination of a Recipient's employment, the reason (if any) for such
termination, and/or the consequences thereof under the terms of the Plan or any
statement evidencing the grant of an Award pursuant to the Plan shall be
determined by the Committee and the Committee's determination thereof shall be
final and binding.
(d) Restrictions. All Awards granted under the Plan shall be
subject to the requirement that, if at any time the Company shall determine, in
its discretion, that the listing, registration or qualification of the shares
subject to Awards granted under the Plan upon any securities exchange or under
any state or federal law, or the consent or approval of any government
regulatory body, is necessary or desirable as a condition of, or in connection
with, the granting of such an Award or the issuance, if any, or purchase of
shares in connection therewith, such Award may not be exercised in whole or in
part unless such listing, registration, qualification, consent or approval shall
have been effected or obtained free of any conditions not acceptable to the
Company. Unless the shares of stock to be issued upon exercise of an Award
granted under the Plan have been effectively registered under the Securities
Act, the Company shall be under no obligation to issue any shares of stock
covered by any Award unless the person who exercises such Award, in whole or in
part, shall give a written representation and undertaking to the Company
satisfactory in form and scope to counsel to the Company and upon which, in the
opinion of such counsel, the Company may reasonably rely, that he or she is
acquiring the shares of stock issued to him or her pursuant to such exercise of
the Award for his or her own account as an investment and not with a view to, or
for sale in connection with, the distribution of any such shares of stock, and
that he or she will make no transfer of the same except in compliance with any
rules and regulations in force at the time of such transfer under the Securities
Act, or any other applicable law, and that if shares of stock are issued without
such registration, a legend to this effect may be endorsed upon the securities
so issued.
(e) Additional Conditions. Any Incentive Award may also be
subject to such other provisions (whether or not applicable to any other Award
or Recipient) as the Committee determines appropriate including, without
limitation, provisions to assist the Recipient in financing the purchase of
Common Stock through the exercise of Stock Options, provisions for the
forfeiture of or restrictions on resale or other disposition of shares of Common
Stock acquired under any form of benefit, provisions giving the Company the
right to repurchase shares of Common Stock acquired under any form of benefit in
the event the Recipient elects to dispose of such shares, and provisions to
comply with federal and state securities laws and federal and state income tax
withholding requirements.
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(f) Privileges of Stock Ownership. Except as otherwise set forth
herein, a Recipient or a permitted transferee of an Award shall have no rights
as a shareholder with respect to any shares issuable or issued in connection
with the Award until the date of the receipt by the Company of all amounts
payable in connection with exercise of the Award and performance by the
Recipient of all obligations thereunder. Status as an Eligible Person shall not
be construed as a commitment that any Award will be granted under this Plan to
an Eligible Person or to Eligible Persons generally. No person shall have any
right, title or interest in any fund or in any specific asset (including shares
of capital stock) of the Company by reason of any Award granted hereunder.
Neither this Plan (or any documents related hereto) nor any action taken
pursuant hereto shall be construed to create a trust of any kind or a fiduciary
relationship between the Company and any person. To the extent that any person
acquires a right to receive an Award hereunder, such right shall be no greater
than the right of any unsecured general creditor of the Company.
(g) Amendment and Termination of Plan: Amendment of Incentive
Awards.
(i) The Board or the Committee may, insofar as permitted
by law, from time to time suspend or discontinue the Plan or revise or amend it
in any respect except that no such amendment shall alter or impair or diminish
any rights or obligations under any Award theretofore granted under the Plan
without the consent of the person to whom such Award was granted , and except
that such amendments shall be subject to stockholder approval to the extent (A)
required to comply with the listing requirements imposed by any exchange or
trading system upon which the Company's securities trade or applicable
provisions of or rules under the Code, or (B) the Board determines in good faith
that such amendments are material to stockholders.
(ii) The Committee may from time to time, with the
consent of a Recipient, make such modifications in the terms and conditions of
an Incentive Award as it deems advisable, including to accelerate or extend the
vesting or exercise period of any Incentive Award, provided that performance
conditions to vesting of Restricted Stock shall not be waived.
(iii) Except as otherwise provided in this Plan or in
the applicable Award Document, no amendment, suspension or termination of the
Plan will, without the consent of the Recipient, alter, terminate, impair or
adversely affect any right or obligation under any Award previously granted
under the Plan.
(h) Nonassignability. No Award granted under the Plan shall be
assignable or transferable except (i) by will or by the laws of descent and
distribution, or (ii) subject to the final sentence of this subsection (h), upon
dissolution of marriage pursuant to a qualified domestic relations order or, in
the discretion of the Committee and under circumstances that would not adversely
affect the interests of the Company. During the lifetime of a Recipient, an
Award granted to him or her shall be exercisable only by the Recipient (or the
Recipient's permitted transferee) or his or her guardian or legal
representative. Notwithstanding the foregoing, Incentive Stock Options (or other
Awards subject to transfer restrictions under the Code) may not be assigned or
transferred in violation of Section 422(b)(5) of the Code (or any
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<PAGE> 41
comparable or successor provision) or the Treasury Regulations thereunder, and
nothing herein is intended to allow such assignment or transfer.
(i) Other Compensation Plans. The adoption of the Plan shall not
affect any other stock option, incentive or other compensation plans in effect
for the Company, and the Plan shall not preclude the Company from establishing
any other forms of incentive or other compensation for employees, directors, or
advisors of the Company.
(j) Plan Binding on Successors. The Plan shall be binding upon
the successors and assigns of the Company.
(k) Participation By Foreign Employees. Notwithstanding anything
to the contrary herein, the Committee may, in order to fulfill the purposes of
the Plan, modify grants of Incentive Awards to Recipients who are foreign
nationals or employed outside of the United States to recognize differences in
applicable law, tax policy or local custom.
(l) Effective Date And Duration of Plan. Awards may be granted
under the Plan until the tenth anniversary of the effective date of the Plan,
whereupon the Plan shall terminate. No Awards may be granted during any
suspension of this Plan or after its termination. Notwithstanding the foregoing,
each Award properly granted under the Plan shall remain in effect until such
Award has been exercised or terminated in accordance with its terms and the
terms of the Plan.
ARTICLE II
INCENTIVE AWARDS
2.01 GRANTS OF INCENTIVE AWARDS. Subject to the express provisions of
this Plan, the Committee may from time to time in its discretion select from the
class of Eligible Persons those individuals to whom Incentive Awards may be
granted pursuant to its authority as set forth in Section 1.04(b). Each
Incentive Award shall be subject to the terms and conditions of the Plan and
such other terms and conditions established by the Committee as are not
inconsistent with the purpose and provisions of the Plan. One or more Incentive
Awards may be granted to any Eligible Person. Nonemployee Directors shall not be
eligible to receive Incentive Awards.
2.02 STOCK OPTIONS.
(a) Nature of Stock Options. Stock Options may be Incentive
Stock Options or Nonqualified Stock Options.
(b) Option Price. The exercise price per share for each Option
(other than a Nonemployee Director's Option) (the "EXERCISE PRICE") shall be
determined by the Committee at the date such Option is granted and shall not be
less than the Fair Market Value of a share of Common Stock (or other securities,
as applicable) at the time of grant, except that the Exercise Price for a
Nonqualified Stock Option may reflect a discount of up to 15% of the Fair Market
Value at the time of grant if the amount of such discount is expressly in lieu
of a reasonable amount of salary or cash bonus. Notwithstanding the foregoing,
however, in no event shall the
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exercise price be less than the par value of the shares of Common Stock subject
to the Option, and the exercise price of an Incentive Stock Option shall be not
less than such amount as is necessary to enable such Option to be treated as an
"incentive stock option" within the meaning of Section 422 of the Code.
(c) Option Period and Vesting. Options (other than Nonemployee
Directors' Options) hereunder shall vest and may be exercised as determined by
the Committee, except that exercise of such Options after termination of the
Recipient's employment shall be subject to Section 2.02(g). Each Option granted
hereunder (other than a Nonemployee Directors Option) and all rights or
obligations thereunder shall expire on such date as shall be determined by the
Committee, but not later than ten years after the date the Option is granted and
shall be subject to earlier termination as herein provided. The Committee may in
its discretion at any time and from time to time after the grant of an Option
(other than a Nonemployee Director's Option) accelerate vesting of such Option
in whole or part by increasing the number of shares then purchasable, provided
that the total number of shares subject to such Option may not be increased.
(d) Exercise of Options. Except as otherwise provided herein, an
Option may become exercisable, in whole or in part, on the date or dates
specified by the Committee (or, in the case of Nonemployee Directors' Options,
the Plan) at the time the Option is granted and thereafter shall remain
exercisable until the expiration or earlier termination of the Option. No Option
shall be exercisable except in respect of whole shares, and fractional share
interests shall be disregarded. Not less than 100 shares of stock (or such other
amount as is set forth in the applicable option agreement) may be purchased at
one time unless the number purchased is the total number at the time available
for purchase under the terms of the Option. An Option shall be deemed to be
exercised when the Secretary of the Company receives written notice of such
exercise from the Recipient, together with payment of the exercise price made in
accordance with Section 2.02(e). Upon proper exercise, the Company shall deliver
to the person entitled to exercise the Option or his or her designee a
certificate or certificates for the shares of stock for which the Option is
exercised. Notwithstanding any other provision of this Plan, the Committee may
impose, by rule and in option agreements, such conditions upon the exercise of
Options (including, without limitation, conditions limiting the time of exercise
to specified periods) as may be required to satisfy applicable regulatory
requirements, including without limitation Rule 16b-3 (or any successor rule)
under the Exchange Act and any applicable section of or rule under the Internal
Revenue Code.
(e) Exercise Price. The Exercise Price shall be payable upon the
exercise of an Option by delivery of legal tender of the United States or
payment of such other consideration as the Committee may from time to time deem
acceptable in any particular instance, including without limitation delivery of
capital stock of the Company (delivered by or on behalf of the person exercising
the Option or retained by the Company from the Common Stock otherwise issuable
upon exercise and valued at Fair Market Value as of the exercise date) or
surrender of other Awards previously granted to the Recipient exercising the
Option; provided, however, that the Committee may, in the exercise of its
discretion, (i) allow exercise of an Option in a broker-assisted or similar
transaction in which the Exercise Price is not received by the Company until
immediately after exercise, and/or (ii) allow the Company to loan the Exercise
Price to
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the person entitled to exercise the Option, if the exercise will be followed by
an immediate sale of some or all of the underlying shares and a portion of the
sales proceeds is dedicated to full payment of the Exercise Price. Any shares of
Company stock or other non-cash consideration assigned and delivered to the
Company in payment or partial payment of the Exercise Price will be valued at
Fair Market Value on the exercise date. No fractional shares will be issued
pursuant to the exercise of an Option.
(f) Limitation on Exercise of Incentive Stock Options. The
aggregate Fair Market Value (determined as of the respective date or dates of
grant) of the Common Stock for which one or more options granted to any
Recipient under the Plan (or any other option plan of the Company or any of its
subsidiaries or affiliates) may for the first time become exercisable as
Incentive Stock Options under the federal tax laws during any one calendar year
shall not exceed $100,000. Any Options granted as Incentive Stock Options
pursuant to the Plan in excess of such limitation shall be treated as
Nonqualified Stock Options.
(g) Termination of Employment.
(i) Termination for Cause. Except as otherwise provided
in a written agreement between the Company and the Recipient, which may be
entered into at any time before or after termination, in the event of a Just
Cause Dismissal of a Recipient all of the Recipient's unexercised Options,
whether or not vested, shall expire and become unexercisable as of the date of
such Just Cause Dismissal.
(ii) Termination other than for Cause. Subject to
subsection (i) above and subsection (iii) below, and except as otherwise
provided in a written agreement between the Company and the Recipient, which may
be entered into at any time before or after termination, in the event of a
Recipient's termination of employment for:
(A) any reason other than for Just Cause
Dismissal, death, or Permanent Disability, or normal retirement, the
Recipient's Options shall, whether or not vested, expire and become
unexercisable as of the earlier of (1) the date such Options would
expire in accordance with their terms if the Recipient remained employed
or (2) three calendar months after the date of termination in the case
of Incentive Stock Options, or six months after the date of termination,
in the case of Nonqualified Stock Options.
(B) death or Permanent Disability, the
Recipient's unexercised Options shall, whether or not vested, expire and
become unexercisable as of the earlier of (1) the date such Options
would expire in accordance with their terms if the Recipient remained
employed or (2) twelve (12) months after the date of termination.
(C) normal retirement, the Recipient's
unexercised Options shall, whether or not vested, expire and become
unexercisable as of the earlier of (A) the date such Options expire in
accordance with their terms or (B) twenty-four (24) months after the
date of retirement.
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(iii) Alteration of Exercise Periods. Notwithstanding
anything to the contrary in subsections (i) or (ii) above, the Committee may in
its discretion designate such shorter or longer periods to exercise Options
(other than Nonemployee Directors' Options) following a Recipient's termination
of employment; provided, however, that any shorter periods determined by the
Committee shall be effective only if provided for in the instrument that
evidences the grant to the Recipient of such Options or if such shorter period
is agreed to in writing by the Recipient. Notwithstanding anything to the
contrary herein, Options shall be exercisable by a Recipient (or his successor
in interest) following such Recipient's termination of employment only to the
extent that installments thereof had become exercisable on or prior to the date
of such termination; provided, however, that the Committee, in its discretion,
may elect to accelerate the vesting of all or any portion of any Options that
had not become exercisable on or prior to the date of such termination.
2.03 PERFORMANCE AWARDS.
(a) Grant of Performance Award. The Committee shall determine
the performance criteria (which need not be identical and may be established on
an individual or group basis) governing Performance Awards, the terms thereof,
and the form and time of payment of Performance Awards.
(b) Payment of Award; Limitation. Upon satisfaction of the
conditions applicable to a Performance Award, payment will be made to the
Recipient in cash or in shares of Common Stock valued at Fair Market Value or a
combination of Common Stock and cash, as the Committee in its discretion may
determine. Notwithstanding any other provision of this Plan, no Eligible Person
shall be paid a Performance Award in excess of $1,000,000 in any one calendar
year; provided, however, that this limitation shall not apply if it is not
required in order for the compensation attributable to the Performance Award
hereunder to qualify as Performance-Based Compensation.
(c) Expiration of Performance Award. If any Recipient's
employment with the Company is terminated for any reason other than normal
retirement, death, or Permanent Disability prior to the time a Performance Award
or any portion thereof becomes payable, all of the Recipient's rights under the
unpaid portion of the Performance Award shall expire and terminate unless
otherwise determined by the Committee. In the event of termination of employment
by reason of death, Permanent Disability or normal retirement, the Committee, in
its discretion, may determine what portions, if any, of the Performance Award
should be paid to the Recipient.
2.04 RESTRICTED STOCK.
(a) Award of Restricted Stock. The Committee may grant awards of
Restricted Stock to Eligible Participants. The Committee shall determine the
Purchase Price (if any), the terms of payment of the Purchase Price, the
restrictions upon the Restricted Stock, and when such restrictions shall lapse,
provided that the restriction period shall be at least one year for
performance-based grants and three years for non-performance-based grants.
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(b) Requirements of Restricted Stock. All shares of Restricted
Stock granted or sold pursuant to the Plan will be subject to the following
conditions:
(i) No Transfer. The shares may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of, alienated or
encumbered until the restrictions are removed or expire;
(ii) Certificates. The Committee may require that the
certificates representing Restricted Stock granted or sold to a Recipient
pursuant to the Plan remain in the physical custody of an escrow holder or the
Company until all restrictions are removed or expire;
(iii) Restrictive Legends. Each certificate representing
Restricted Stock granted or sold to a Recipient pursuant to the Plan will bear
such legend or legends making reference to the restrictions imposed upon such
Restricted Stock as the Committee in its discretion deems necessary or
appropriate to enforce such restrictions; and
(iv) Other Restrictions. The Committee may impose such
other conditions on Restricted Stock as the Committee may deem advisable
including, without limitation, restrictions under the Securities Act, under the
Exchange Act, under the requirements of any stock exchange upon which such
Restricted Stock or shares of the same class are then listed and under any blue
sky or other securities laws applicable to such shares.
(c) Rights of Recipient. Subject to the provisions of Section
2.04(b) and any restrictions imposed upon the Restricted Stock, the Recipient
will have all rights of a stockholder with respect to the Restricted Stock
granted or sold to such Recipient under the Plan, including the right to vote
the shares and receive all dividends and other distributions paid or made with
respect thereto.
(d) Termination of Employment. Unless the Committee in its
discretion determines otherwise, upon a Recipient's termination of employment
for any reason, all of the Recipient's Restricted Stock remaining subject to
restrictions imposed pursuant to the Plan on the date of such termination of
employment shall be repurchased by the Company at the Purchase Price (if any).
2.05 STOCK APPRECIATION RIGHTS.
(a) Granting of Stock Appreciation Rights. The Committee may
approve the grant to Eligible Persons of Stock Appreciation Rights, related or
unrelated to Options, at any time.
(b) SARs Related to Options.
(i) A Stock Appreciation Right granted in connection
with an Option granted under this Plan will entitle the holder of the related
Option, upon exercise of the Stock Appreciation Right, to surrender such Option,
or any portion thereof to the extent unexercised, with respect to the number of
shares as to which such Stock Appreciation Right is exercised, and
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to receive payment of an amount computed pursuant to Section 2.05(b)(iii). Such
Option will, to the extent surrendered, then cease to be exercisable.
(ii) A Stock Appreciation Right granted in connection
with an Option hereunder will be exercisable at such time or times, and only to
the extent that, the related Option is exercisable, and will not be transferable
except to the extent that such related Option may be transferable.
(iii) Upon the exercise of a Stock Appreciation Right
related to an Option, the Holder will be entitled to receive payment of an
amount determined by multiplying: (i) the difference obtained by subtracting the
Exercise Price of a share of Common Stock specified in the related Option from
the Fair Market Value of a share of Common Stock on the date of exercise of such
Stock Appreciation Right (or as of such other date or as of the occurrence of
such event as may have been specified in the instrument evidencing the grant of
the Stock Appreciation Right), by (ii) the number of shares as to which such
Stock Appreciation Right is exercised.
(c) SARs Unrelated to Options. The Committee may grant Stock
Appreciation Rights unrelated to Options to Eligible Persons. Section
2.05(b)(iii) shall be used to determine the amount payable at exercise under
such Stock Appreciation Right, except that in lieu of the Option Exercise Price
specified in the related Option the initial base amount specified in the
Incentive Award shall be used.
(d) Limits. Notwithstanding the foregoing, the Committee, in its
discretion, may place a dollar limitation on the maximum amount that will be
payable upon the exercise of a Stock Appreciation Right under the Plan.
(e) Payments. Payment of the amount determined under the
foregoing provisions may be made solely in whole shares of Common Stock valued
at their Fair Market Value on the date of exercise of the Stock Appreciation
Right or, alternatively, at the sole discretion of the Committee, in cash or in
a combination of cash and shares of Common Stock as the Committee deems
advisable. The Committee has full discretion to determine the form in which
payment of a Stock Appreciation Right will be made and to consent to or
disapprove the election of a Recipient to receive cash in full or partial
settlement of a Stock Appreciation Right. If the Committee decides to make full
payment in shares of Common Stock, and the amount payable results in a
fractional share, payment for the fractional share will be made in cash.
(f) Rule 16b-3. The Committee may, at the time a Stock
Appreciation Right is granted, impose such conditions on the exercise of the
Stock Appreciation Right as may be required to satisfy the requirements of Rule
16b-3 under the Exchange Act (or any other comparable provisions in effect at
the time or times in question).
(g) Termination of Employment. Section 2.02(g) will govern the
treatment of Stock Appreciation Rights upon the termination of a Recipient's
employment with the Company.
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2.06 STOCK PAYMENTS.
The Committee may approve Stock Payments of the Company's Common
Stock to any Eligible Person for all or any portion of the compensation (other
than base salary) or other payment that would otherwise become payable by the
Company to the Eligible Person in cash.
2.07 DIVIDEND EQUIVALENTS.
The Committee may grant Dividend Equivalents to any Recipient
who has received a Stock Option, SAR, or other Incentive Award denominated in
shares of Common Stock. Such Dividend Equivalents shall be effective and shall
entitle the recipients thereof to payments during the "APPLICABLE DIVIDEND
PERIOD," which shall be (i) the period between the date the Dividend Equivalent
is granted and the date the related Stock Option, SAR, or other Incentive Award
is exercised, terminates, or is converted to Common Stock, or (ii) such other
time as the Committee may specify in the written instrument evidencing the grant
of the Dividend Equivalent. Dividend Equivalents may be paid in cash, Common
Stock, or other Incentive Awards; the amount of Dividend Equivalents paid other
than in cash shall be determined by the Committee by application of such formula
as the Committee may deem appropriate to translate the cash value of dividends
paid to the alternative form of payment of the Dividend Equivalent. Dividend
Equivalents shall be computed as of each dividend record date and shall be
payable to recipients thereof at such time as the Committee may determine.
Notwithstanding the foregoing, if it is intended that an Incentive Award qualify
as Performance-Based Compensation and the amount of the compensation the
Eligible Person could receive under the award is based solely on an increase in
value of the underlying stock after the date of grant or award (i.e., the grant,
vesting, or exercisability of the award is not conditioned upon the attainment
of a preestablished, objective performance goal described in Section 1.02(t)),
then the payment of any Dividend Equivalents related to the award shall not be
made contingent on the exercise of the award.
ARTICLE III
NONEMPLOYEE DIRECTOR'S OPTIONS
3.01 GRANTS OF INITIAL OPTIONS.
Each Nonemployee Director shall, upon first becoming a
Nonemployee Director, receive a one-time grant of a Nonemployee Director's
Option to purchase up to 40,000 shares of the Company's Common Stock at an
exercise price per share equal to the Fair Market Value of the Company's Common
Stock on the date of grant, subject to (i) vesting as set forth in Section 3.04,
and (ii) adjustment as set forth in Section 1.05(b). Options granted under this
Section 3.01 are "INITIAL OPTIONS" for purposes hereof.
3.02 GRANTS OF ADDITIONAL OPTIONS.
Each Nonemployee director shall also receive, upon each
re-election to the Company's Board of Directors, an automatic grant of a
Nonemployee Director's Option to purchase up to 5,000 shares of the Company's
Common Stock at an exercise price per share
15
<PAGE> 48
equal to the Fair Market Value of the Company's Common Stock on the date of
grant, subject to (i) vesting as set forth in Section 3.04, and (ii) adjustment
as set forth in Section 1.05(b). Options granted under this Section 3.02 are
"ADDITIONAL OPTIONS" for purposes hereof.
3.03 EXERCISE PRICE.
The exercise price for Nonemployee Directors' Options shall be
payable as set forth in Section 2.02(e).
3.04 VESTING AND EXERCISE.
Initial Options shall vest and become exercisable with respect
to 25% of the underlying shares on the grant date and with respect to an
additional 25% of the underlying shares on the dates of each of the first three
annual meetings of the Company's stockholders following the grant date, but only
if on the date of each such annual meeting, the Recipient is continuing as a
director of the Company for the ensuing year, provided, however, that if the
grant date is within six months of the ensuing annual meeting of the Company's
stockholders, then after vesting of the Option with respect to 25% of the
underlying shares on the grant date, the Option will vest with respect to an
additional 25% of the underlying shares on the dates of each of the second,
third, and fourth annual meetings of the Company's stockholders following the
grant date, but only if, on the date of each such annual meeting, the Recipient
is continuing as a director for the ensuing year. Additional Options shall vest
and become exercisable upon the earlier of (a) the first anniversary of the
grant date or (b) immediately prior to the annual meeting of stockholders of the
Company next following the grant date, if the optionee has remained a director
for the entire period from the date of grant to such earlier date.
Notwithstanding the foregoing, however, Initial Options and Additional Options
that have not vested and become exercisable at the time the optionee ceases to
be a director shall terminate.
3.05 TERM OF OPTIONS AND EFFECT OF TERMINATION.
No Nonemployee Directors' Option shall be exercisable after the
expiration of ten years from the effective date of its grant. In the event that
the Recipient of a Nonemployee Director's Option shall cease to be a director of
the Company, all Nonemployee Directors' Options granted to such Recipient shall
be exercisable, to the extent already exercisable at the date such Recipient
ceases to be a director and regardless of the reason the Recipient ceases to be
a director, for a period of five (5) years after that date (or, if sooner, until
the expiration of the option according to its terms). In the event of the death
of a Recipient of a Nonemployee Director's Option while such Recipient is a
director of the Company or within the period after termination of such status
during which he or she is permitted to exercise such Option, such Option may be
exercised by any person or persons designated by the Recipient on a Beneficiary
Designation Form adopted by the Company for such purpose or, if there is no
effective Beneficiary Designation Form on file with the Company, by the
executors or administrators of the Recipient's estate or by any person or
persons who shall have acquired the option directly from the Recipient by his or
her will or the applicable laws of descent and distribution.
16
<PAGE> 49
ARTICLE IV
RECAPITALIZATIONS AND REORGANIZATIONS
4.01 CORPORATE TRANSACTIONS.
If the Company shall be the surviving corporation in any merger
or consolidation, each outstanding Option shall pertain and apply to the
securities to which a holder of the same number of shares of Common Stock that
are subject to that Option would have been entitled. In the event of a Change in
Control (as defined below), all Nonemployee Directors' Options and any Incentive
Awards specified by the Committee or the Board shall immediately vest and become
exercisable, and all conditions thereto shall be deemed to have been met. For
purposes hereof, a "Change in Control" means the following and shall be deemed
to occur if any of the following events occur:
(i) Except as provided by subsection (iii) hereof, the
acquisition (other than from the Company) by any person, entity or
"group," within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act (excluding, for this purpose, the Company or its
subsidiaries, or any employee benefit plan of the Company or its
subsidiaries which acquires beneficial ownership of voting securities of
the Company), of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of forty percent (40%) or more of
either the then outstanding shares of Common Stock or the combined
voting power of the Company's then outstanding voting securities
entitled to vote generally in the election of directors; or
(ii) Individuals who, as of the effective date of the
Plan, constitute the Board of Directors of the Company (the "INCUMBENT
BOARD") cease for any reason to constitute at least a majority of the
Board of Directors of the Company, provided that any person becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, is or was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board
(other than an election or nomination of an individual whose initial
assumption of office is in connection with an actual or threatened
election contest relating to the election of the directors of the
Company, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) shall be, for purposes of this
Agreement, considered as though such person were a member of the
Incumbent Board; or
(iii) Approval by the stockholders of the Company of a
reorganization, merger or consolidation with any other person, entity or
corporation, other than
(A) a merger or consolidation which would result
in the voting securities of the Company outstanding immediately
prior
17
<PAGE> 50
thereto continuing to represent (either by remaining outstanding
or by being converted into voting securities of another entity)
more than fifty percent (50%) of the combined voting power of
the voting securities of the Company and such other entity
outstanding immediately after such merger or consolidation, or
(B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar
transaction) in which no person acquires forty percent (40%) or
more of the combined voting power of the Company's then
outstanding voting securities; or
(iv) Approval by the stockholders of the Company of a
plan of complete liquidation of the Company or an agreement for the sale
or other disposition by the Company of all or substantially all of the
Company's assets.
Notwithstanding the preceding provisions of this Section 4.01, a Change in
Control shall not be deemed to have occurred (l) if the "person" described in
the preceding provisions of this Section 4.01 is an underwriter or underwriting
syndicate that has acquired the ownership of 50% or more of the combined voting
power of the Company's then outstanding voting securities solely in connection
with a public offering of the Company's securities, or (2) if the "person"
described in the preceding provisions of this Paragraph is an employee stock
ownership plan or other employee benefit plan maintained by the Company that is
qualified under the provisions of the Employee Retirement Income Security Act of
1974, as amended.
4.02 DETERMINATION BY THE COMMITTEE.
To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Committee,
whose determination in that respect shall be final, binding and conclusive. The
grant of an Option pursuant to the Plan shall not affect in any way the right or
power of the Company to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure or to merge or to consolidate or to
dissolve, liquidate or sell, or transfer all of any part of its business or
assets.
18
<PAGE> 51
LA JOLLA PHARMACEUTICAL COMPANY
6455 NANCY RIDGE DRIVE
SAN DIEGO, CA 92121
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Steven B. Engle and Wood C. Erwin, and
each of them, as Proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and to vote as designated on the reverse all
shares of Common Stock of La Jolla Pharmaceutical Company (the "Company") held
of record by the undersigned on March 17, 1999 at the Annual Meeting of
Stockholders to be held on May 13, 1999, and at any postponements and
adjournments thereof. The proposals referred to on the reverse side of this
proxy are described in the Proxy Statement for the Annual Meeting of
Stockholders dated April 13, 1999.
CONTINUED ON THE REVERSE SIDE AND IS TO BE SIGNED
<PAGE> 52
A [X] Please mark your votes as in this example.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOR all nominees WITHHOLD AUTHORITY Nominees:
listed at right to vote for all Thomas H. Adams, Ph.D.
(except as marked nominees William E. Engbers
to the contrary below) listed at right Steven B. Engle
1. ELECTION OF DIRECTORS [ ] [ ] Robert A. Fildes, Ph.D.
W. Leigh Thompson, M.D., Ph.D.
</TABLE>
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, LINE
THROUGH OR OTHERWISE STRIKE OUT THE NOMINEE'S NAME AT RIGHT
2. Approval of an amendment to the La Jolla Pharmaceutical Company 1994
Stock Incentive Plan to increase by 750,000 the total number of shares
of the Company's Common Stock that may be issued pursuant to such plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approval of an amendment to the La Jolla Pharmaceutical Company 1994
Stock Incentive Plan to include non-employee directors, including
members of the Board's Compensation Committee, within the group of
persons eligible to receive stock options (in addition to awards of
non-employee directors' options that each such director is already
eligible to receive under such plan), restricted stock, stock
appreciation rights, stock payments, performance awards of cash and/or
stock, and dividend equivalents under such plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. Approval of an amendment to the La Jolla Pharmaceutical Company Restated
Certificate of Incorporation to increase the number of authorized shares
of the Company's Common Stock to 100,000,000.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. Approval of an amendment to the La Jolla Pharmaceutical Company (a)
Restated Certificate of Incorporation to (i) implement a classified
board of directors divided into three classes of directors, (ii) provide
that only the Board may set by resolution the number of directors within
the specified range, (iii) provide that only the Board may fill
vacancies on the Board and that any director appointed to fill a vacancy
will serve for the remainder of the full term of the class in which the
vacancy occurred, and (iv) require a vote of 75% of the Company's
stockholders to amend or repeal the foregoing provisions; and (b)
Amended and Restated Bylaws to conform to the foregoing.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
6. Approval of an amendment to the La Jolla Pharmaceutical Company Restated
Certificate of Incorporation to prohibit stockholder action by written
consent.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
7. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR THE NOMINEES NAMED IN PROPOSAL 1 AND FOR
PROPOSALS 2, 3, 4, 5 and 6.
PLEASE SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED
ENVELOPE.
SIGNATURE DATE SIGNATURE DATE
----------------- ------ ------------------ ---------
IF HELD JOINTLY
Please sign exactly as your name appears hereon. When shares are held by joint
tenants both should sign. When signing as attorney-in-fact, executor,
administrator, trustee or guardian, please sign as such and include such title.
If a corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
